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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

10. INCOME TAXES

The current and deferred amounts of income tax expense consist of the following.

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

 

(Dollars in thousands)

 

Current provision:

 

 

 

 

 

 

 

 

 

Federal

 

$

63,257

 

 

$

60,763

 

 

$

44,514

 

State

 

 

35,077

 

 

 

35,427

 

 

 

27,526

 

 

 

98,334

 

 

 

96,190

 

 

 

72,040

 

Deferred provision:

 

 

 

 

 

 

 

 

 

Federal

 

 

(2,913

)

 

 

(2,496

)

 

 

8,782

 

State

 

 

(1,422

)

 

 

(772

)

 

 

4,305

 

 

 

(4,335

)

 

 

(3,268

)

 

 

13,087

 

Total

 

$

93,999

 

 

$

92,922

 

 

$

85,127

 

 

Income tax asset consists of the following.

 

December 31,

 

 

2023

 

 

2022

 

 

(Dollars in thousands)

 

Current:

 

 

 

 

 

 

Federal

 

$

(10,094

)

 

$

1,740

 

State

 

 

(1,722

)

 

 

658

 

 

 

(11,816

)

 

 

2,398

 

Deferred:

 

 

 

 

 

 

Federal

 

 

112,481

 

 

 

117,698

 

State

 

 

63,303

 

 

 

66,588

 

 

 

175,784

 

 

 

184,286

 

Total

 

$

163,968

 

 

$

186,684

 

 

 

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. The components of the net deferred tax asset are as follows.

 

December 31,

 

 

2023

 

 

2022

 

 

(Dollars in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

Bad debt and credit loss deduction

 

$

30,038

 

 

$

29,648

 

Net operating loss carryforward

 

 

3,711

 

 

 

4,701

 

Deferred compensation

 

 

6,849

 

 

 

6,768

 

PCI loans

 

 

54

 

 

 

51

 

Accrued expense

 

 

7,257

 

 

 

5,678

 

Unrealized loss on investment securities, net

 

 

145,404

 

 

 

159,229

 

Acquired loan discounts

 

 

3,061

 

 

 

4,288

 

Lease liability

 

 

7,505

 

 

 

7,541

 

Other, net

 

 

1,816

 

 

 

2,251

 

Gross deferred tax asset

 

 

205,695

 

 

 

220,155

 

Deferred tax liabilities:

 

 

 

 

 

 

California franchise tax

 

 

5,921

 

 

 

6,568

 

Depreciation

 

 

2,950

 

 

 

3,762

 

Intangibles - acquisitions

 

 

7,714

 

 

 

11,591

 

FHLB Stock

 

 

2,545

 

 

 

2,545

 

Deferred income

 

 

3,886

 

 

 

4,177

 

Right of use asset

 

 

6,895

 

 

 

7,226

 

Gross deferred tax liability

 

 

29,911

 

 

 

35,869

 

Net deferred tax asset

 

$

175,784

 

 

$

184,286

 

 

Annual Effective Tax Rate

The annual consolidated effective tax rate for the periods presented, is reconciled to the U.S. statutory income rate as follows.

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

2021

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

(Dollars in thousands)

 

Federal income tax at statutory rate

 

$

66,241

 

 

 

21.0

%

 

$

68,953

 

 

 

21.0

%

 

$

62,506

 

 

 

21.0

%

State franchise taxes, net of federal benefit

 

 

25,139

 

 

 

8.0

%

 

 

27,256

 

 

 

8.3

%

 

 

24,600

 

 

 

8.3

%

State impact of BOLI surrender, net of federal benefit

 

 

1,489

 

 

 

0.5

%

 

 

—

 

 

 

0.0

%

 

 

—

 

 

 

0.0

%

Federal impact of BOLI surrender and MEC penalty

 

 

5,486

 

 

 

1.7

%

 

 

—

 

 

 

0.0

%

 

 

—

 

 

 

0.0

%

Tax-exempt income

 

 

(5,146

)

 

 

(1.6

)%

 

 

(3,290

)

 

 

(1.0

)%

 

 

(3,165

)

 

 

(1.1

)%

Tax credits

 

 

(1,239

)

 

 

(0.4

)%

 

 

(1,617

)

 

 

(0.5

)%

 

 

(1,640

)

 

 

(0.6

)%

Other, net

 

 

2,029

 

 

 

0.6

%

 

 

1,620

 

 

 

0.5

%

 

 

2,826

 

 

 

1.0

%

Provision for income taxes

 

$

93,999

 

 

 

29.8

%

 

$

92,922

 

 

 

28.3

%

 

$

85,127

 

 

 

28.6

%

 

The Company invests in low income housing tax credit and solar tax 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. Refer to Note 3 – Summary of Significant Accounting Policies contained herein for a more detailed discussion concerning the adoption of 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method in 2023. For the year ended December 31, 2023, tax credits and other benefits recognized was $12.2 million and the tax credit amortization expense included in the provision for income taxes was $14.1 million.

 

There were no significant unrecognized tax benefits at December 31, 2023 and 2022. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months.

The Company is subject to income taxes in the federal, California and Arizona. The Company is no longer subject to examinations by taxing jurisdictions for periods before 2019, with the exception of California, for which the Company is no longer subject to examination for years before 2013.

At December 31, 2023, the Company has net operating loss (NOLs) carryforwards of approximately $11.4 million for federal and $12.1 million California tax purposes, as a result of the acquisition of Suncrest Bank. The federal and California NOLs of approximately $9.5 and $7.1 million, respectively, are subject to annual IRC Section 382 limitations of $3.4 million and have no expiration for federal tax purposes but will expire in 2032 for California if not utilized. The balance of the NOLs are subject to annual IRC Section 382 limitations of $314,000 and will begin to expire in 2030.

The Company considered the need for a valuation allowance on its deferred tax assets for the year ended December 31, 2023. The Company considered income in prior periods, projected future income, and projected future reversals of deferred tax items in making the determination that the deferred tax assets are more likely than not to be realized.