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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
17. INCOME TAXES
The provision for income taxes charged to operations consists of the following: 
 Year Ended December 31,
 202120202019
 (in millions)
Current$181.8 $141.0 $110.1 
Deferred42.0 (25.1)(5.1)
Total tax provision$223.8 $115.9 $105.0 
The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate is summarized as follows: 
Year Ended December 31,
202120202019
(in millions)
Income tax at statutory rate$235.8 $130.7 $126.9 
Increase (decrease) resulting from:
State income taxes, net of federal benefits35.8 13.9 11.0 
Tax-exempt income(25.6)(21.7)(19.6)
Investment tax credits(15.9)(13.9)(15.0)
Other, net(6.3)6.9 1.7 
Total tax provision$223.8 $115.9 $105.0 
For the years ended December 31, 2021, 2020, and 2019 the Company's effective tax rate was 19.9%, 18.6%, and 17.4%, respectively. The increase in the effective tax rate from 2020 to 2021 is primarily due to an increase in pretax book income and state income taxes associated with the AmeriHome acquisition which were not fully offset by growth in permanent tax benefit items for the year. The increase in the effective tax rate from 2019 to 2020 is due primarily to tax expense associated with the surrender of BOLI, no valuation allowance release in 2020, and return to provision adjustments.
The cumulative tax effects of the primary temporary differences are shown in the following table:
December 31,
20212020
(in millions)
Deferred tax assets:
Allowance for credit losses$81.0 $84.6 
Lease liability 38.6 21.1 
Premises and equipment10.0 — 
Accrued expenses9.8 3.6 
Passthrough income 9.1 8.4 
Insurance premiums — 18.9 
Other34.9 29.1 
Total gross deferred tax assets183.4 165.7 
Deferred tax asset valuation allowance— — 
Total deferred tax assets183.4 165.7 
Deferred tax liabilities:
Mortgage servicing rights(57.6)— 
Right of use asset(36.0)(19.2)
Deferred loan costs(15.5)(12.8)
Leasing basis differences (12.3)(11.1)
IRC section 50(d) income(7.7)(9.8)
Estimated loss reserve(7.6)(17.5)
Unearned premiums (7.2)(16.8)
Insurance premiums(6.0)— 
Unrealized gain on AFS securities(5.7)(31.2)
Premises and equipment— (7.6)
Other(6.9)(8.4)
Total deferred tax liabilities(162.5)(134.4)
Deferred tax assets, net$20.9 $31.3 
Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be reversed. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Net deferred tax assets decreased $10.4 million to $20.9 million from December 31, 2020. The overall decrease in net deferred tax assets was due to an increase in deferred tax liabilities, not fully offset by an increase in deferred tax assets. The increase in deferred tax liabilities from December 31, 2020 is primarily attributable to an increase in mortgage servicing rights from AmeriHome operations and a decrease in deferred insurance premiums related to the Company’s insurance captive, which was in a deferred tax asset position in the prior year. These increases were offset in part by a decrease in deferred tax liabilities related to a decrease in the fair market value of AFS securities. The increase in deferred tax assets from December 31, 2020 is primarily attributable to a change in tax planning strategy pertaining to the depreciation election on premises and equipment, which was in a deferred tax liability position in the prior year. Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $20.9 million at December 31, 2021 is more-likely-than-not based on expectations as to future taxable income and based on available tax planning strategies that could be implemented if necessary to prevent a carryover from expiring.
As of December 31, 2021 and 2020, the Company has no deferred tax valuation allowance.
As of December 31, 2021, the Company’s gross federal NOL carryovers, all of which are subject to limitations under Section 382 of the IRC, totaled $41.1 million, for which a deferred tax asset of $4.5 million has been recorded, reflecting the expected benefit of these federal NOL carryovers remaining after application of the Section 382 limitation. The Company does not currently have any remaining state NOL carryovers. The Company files income tax returns in the U.S. federal jurisdiction and in various states. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2017.
When tax returns are filed, it is highly certain that most positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the Consolidated Financial Statements in the period in which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits on the accompanying Consolidated Balance Sheets along with any associated interest and penalties payable to the taxing authorities upon examination.
The total gross activity of unrecognized tax benefits related to the Company's uncertain tax positions are shown in the following table:
December 31,
20212020
(in millions)
Beginning balance$3.4 $1.7 
Gross increases
Tax positions in prior periods0.8 — 
Current period tax positions2.2 2.2 
Gross decreases
Tax positions in prior periods— — 
Settlements— (0.1)
Lapse of statute of limitations— (0.4)
Ending balance$6.4 $3.4 
During the year ended December 31, 2021, the Company added a new position, which resulted in a tax detriment of $2.5 million, inclusive of interest and penalties.
As of December 31, 2021 and 2020, the total amount of unrecognized tax benefits, net of associated deferred tax benefits, that would impact the effective tax rate, if recognized, is $5.1 million and $2.1 million, respectively. The Company does not anticipate that any unrecognized tax benefits will be resolved within the next 12 months.
During the years ended December 31, 2021, 2020, and 2019, the Company recognized no additional amounts for interest and penalties. As of December 31, 2021 and 2020, the Company has no accrued liabilities for penalties and interest.
LIHTC and renewable energy projects
As discussed in "Note 1. Summary of Significant Accounting Policies," the Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing and renewable energy projects. These investments are designed to generate a return primarily through the realization of federal tax credits and deductions. The limited liability entities are considered to be VIEs; however, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities.
At December 31, 2021, the Company’s exposure to loss as a result of its involvement in these entities was limited to $676.5 million, which reflects the Company’s recorded investment in these projects, net of certain unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing authorities. During the years ended December 31, 2021, 2020, and 2019, the Company did not provide financial or other support to these entities that was not contractually required.
Investments in LIHTC and renewable energy total $631.3 million and $405.6 million as of December 31, 2021 and 2020, respectively. Unfunded LIHTC and renewable energy obligations are included as part of Other liabilities on the Consolidated Balance Sheets and total $360.8 million and $151.7 million as of December 31, 2021 and 2020, respectively. For the years ended December 31, 2021, 2020, and 2019, $49.5 million, $49.2 million, and $41.5 million of amortization related to LIHTC investments was recognized as a component of income tax expense, respectively.