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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table presents the components of the provision for income taxes included in the Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 (in thousands):
 Years Ended December 31
 202120202019
Current
Federal$20,461 $30,325 $25,278 
State4,359 6,964 2,494 
Total Current24,820 37,289 27,772 
Deferred
Federal18,278 (8,134)7,738 
State2,448 (2,630)1,344 
Total Deferred20,726 (10,764)9,082 
Provision for income taxes$45,546 $26,525 $36,854 

The following table presents the reconciliation of the federal statutory rate to the actual effective rate for the years ended December 31, 2021, 2020 and 2019:
 Years Ended December 31
 202120202019
Federal income tax statutory rate21.0 %21.0 %21.0 %
Increase (decrease) in tax rate due to:   
Tax-exempt interest(3.0)(4.4)(2.2)
Investment in life insurance(0.4)(0.9)(0.5)
State income taxes, net of federal tax offset2.2 2.5 2.0 
Tax credits(1.5)(2.6)(1.2)
Merger and acquisition costs— — 0.1 
State audits and amended returns— — (0.5)
Low income housing partnerships, net of amortization1.1 1.6 0.7 
Other(0.9)1.4 0.7 
Effective income tax rate18.5 %18.6 %20.1 %
The following table reflects the effect of temporary differences that gave rise to the components of the net deferred tax asset as of December 31, 2021 and 2020 (in thousands):
 December 31
 20212020
Deferred tax assets:  
Loan loss and REO$34,753 $43,158 
Deferred compensation21,193 18,309 
Net operating loss carryforward20,159 26,126 
Federal and state tax credits7,631 7,517 
State net operating losses5,179 5,400 
Loan discount1,830 3,365 
Lease liability14,136 14,088 
Other5,091 9,177 
Total deferred tax assets109,972 127,140 
Deferred tax liabilities:  
Depreciation(7,119)(7,537)
Deferred loan fees, servicing rights and loan origination costs(12,696)(11,646)
Intangibles(4,977)(6,278)
Right of use asset(13,071)(13,144)
Unrealized loss (gain) on securities - available-for-sale91 (21,662)
Financial instruments accounted for under fair value accounting(878)(947)
Total deferred tax liabilities(38,650)(61,214)
Deferred income tax asset71,322 65,926 
Valuation allowance(184)(184)
Deferred tax asset, net$71,138 $65,742 

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recognized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment.

At December 31, 2021, the Company has federal net operating loss carryforwards of approximately $96.0 million. The Company also has $72.5 million of state net operating loss carryforwards, against which the Company has established a $184,000 valuation reserve. The federal and state net operating losses will expire, if unused, by the end of 2034.  The Company has federal general business credit carryforwards at December 31, 2021 of $3.3 million, which will expire, if unused, by the end of 2031. The Company also has federal alternative minimum tax credit carryforwards of $4.2 million, which are available to reduce future federal regular income taxes, if any, over an indefinite period. At December 31, 2020, the Company had federal and state net operating loss carryforwards of approximately $124.4 million and $76.3 million, respectively, and federal general business credits carryforwards of $3.3 million. At that same date, the Company also had federal alternative minimum tax credit carryforwards of approximately $4.2 million.

As a consequence of the Company’s 2015 acquisition of Starbuck Bancshares, Inc., the Company experienced a change in control within the meaning of Section 382 of the Code. In addition, the underlying Section 382 limitations at Starbuck Bancshares, Inc.’s level continue to apply to the Company. Section 382 limits the ability of a corporate taxpayer to use net operating loss carryforwards, general business credits, and recognized built-in-losses, on an annual basis, incurred prior to the change in control against income earned after the change in control. As a result of the Section 382 limitations, the Company is limited to utilizing $21.5 million on an annual basis (after the application of the Section 382 limitations carried over from Starbuck Bancshares, Inc.) of federal net operating loss carryforwards, general business credits, and recognized built-in losses. The applicable state Section 382 limitations range from $525,000 to $21.5 million. In 2017, the Company established a $184,000 valuation reserve against the portion of its various state net operating loss carryforwards and tax credits that it believed it is more likely than not that it would not realize the benefit because the application of the Section 382 limitations at the state level is based on future apportionment rates. For non-Section 382 limited alternative minimum tax credits, the credits expired in 2019 due to the passage of the CARES Act in 2020.

As a consequence of Banner’s capital raise in June 2010, the Company experienced a change in control within the meaning of Section 382 of the Code. As a result of the Section 382 limitations, the Company is limited to utilizing $6.9 million of net operating loss carryforwards which existed prior to the acquisition of Starbuck Bancshares, Inc., on an annual basis. Based on its analysis, the Company believes it is more likely than not that the June 2010 change in control will not impact its ability to utilize all of the related available net operating loss carryforwards, general business credits, and recognized built-in-losses.
As a consequence of the Company’s 2019 acquisition of AltaPacific and AltaPacific Bank, the Company did not experience a change in control within the meaning of Section 382 of the Code. However, the underlying Section 382 limitations at AltaPacific and AltaPacific Bank’s continue to apply to the Company. As a result of the Section 382 limitations, the Company is limited to utilizing $110,000 of the federal net operating loss carryovers and general business credits acquired from AltaPacific and AltaPacific Bank based on underlying limits carried over. Based on its analysis, the Company believes it is more likely than not that the Section 382 limitations will not impact its ability to utilize all of the related available net operating loss carryforwards and general business credits.

Retained earnings at December 31, 2021 and 2020 included approximately $5.4 million in tax basis bad debt reserves for which no income tax liability has been recorded.  In the future, if this tax bad debt reserve is used for purposes other than to absorb bad debts or the Company no longer qualifies as a bank or is completely liquidated, the Company will incur a federal tax liability at the then-prevailing corporate tax rate, established as $1.1 million at December 31, 2021.

A reconciliation of the beginning and ending amount of total unrecognized state tax benefits for the years ended December 31, 2021 and 2020 is as follows (in thousands):

 Years Ended December 31
 20212020
Balance, beginning of year$450 $275 
Changes related to prior year tax positions365 — 
Changes related to current year tax positions185 175 
Balance, end of year$1,000 $450 

None of the unrecognized tax benefits, if recognized, would materially affect the effective tax rate. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense. The amount of interest and penalties accrued for the years ended December 31, 2021, 2020 and 2019 is immaterial. The Company files consolidated income tax returns in Oregon, California, Utah, Montana and Idaho and for federal purposes. The Company is no longer subject to tax examination for tax years before 2018.

Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes.

The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at December 31, 2021 and 2020 (in thousands):
December 31, 2021December 31, 2020
Tax credit investments$56,589 $33,528 
Unfunded commitments—tax credit investments31,174 18,306 

The following table presents other information related to the Company’s tax credit investments for the years ended December 31, 2021, 2020 and 2019 (in thousands):
For the years ended December 31,
202120202019
Tax credits and other tax benefits recognized$4,390 $3,842 $1,916 
Tax credit amortization expense included in provision for income taxes3,816 2,992 1,633