XML 35 R22.htm IDEA: XBRL DOCUMENT v3.22.0.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table presents the components of income tax expense of continuing operations for the periods indicated:
Year Ended December 31,
($ in thousands)202120202019
Current income taxes:
Federal$7,966 $7,332 $3,900 
State6,466 3,713 941 
Total current income tax expense14,432 11,045 4,841 
Deferred income taxes:
Federal4,950 (5,663)(1,492)
State894 (3,596)870 
Total deferred income tax expense (benefit)5,844 (9,259)(622)
Income tax expense$20,276 $1,786 $4,219 
The following table presents a reconciliation of the recorded income tax expense of continuing operations to the amount of taxes computed by applying the applicable statutory Federal income tax rate of 21.0% to income from continuing operations before income taxes for the years ended December 31, 2021, 2020, and 2019:
Year Ended December 31,
202120202019
Computed expected income tax expense at Federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
Proportional amortization4.3 %24.1 %12.6 %
Income tax credits (investment tax credits and other)(5.5)%(30.6)%(20.0)%
Other permanent book-tax differences0.9 %1.9 %(2.4)%
State tax expense, net of federal benefit7.0 %0.6 %5.1 %
Bank owned life insurance policies(0.7)%(3.6)%(1.7)%
Equity compensation shortfall (windfall) tax impact(2.2)%2.2 %0.6 %
Reserve for uncertain tax positions— %(0.9)%(1.0)%
Other, net(0.3)%(2.3)%0.9 %
Effective tax rates24.5 %12.4 %15.1 %
During the year ended December 31, 2021, income tax expense included a $2.5 million tax benefit from share-based awards, including the exercise of all previously issued outstanding stock appreciation rights and other discrete tax items that impacted our effective tax rate. During the year ended December 31, 2021, our qualified affordable housing partnerships resulted in a reduction of our effective tax rate as the tax deductions and credits outpaced the increase in the effective tax rate due to higher proportional amortization.
Our effective tax rate for the year ended December 31, 2021 was higher than the effective tax rate for the year ended December 31, 2020 due mainly to (i) higher pre-tax income, and (ii) lower net tax effects of our qualified affordable housing partnerships, offset by (iii) higher tax benefit from share-based awards of $2.5 million, primarily from the exercise of all previously issued outstanding stock appreciation rights in 2021.
The Company’s effective tax rate for the year ended December 31, 2020 was lower than the effective tax rate for the year ended December 31, 2019 due mainly to (i) lower pre-tax income, (ii) lower state tax deductions, and (iii) the net tax effects of our qualified affordable housing partnerships and investments in alternative energy partnerships. During the year ended December 31, 2020 our qualified affordable housing partnerships resulted in a reduction of our effective tax rate as the tax deductions and credits outpaced the increase in the effective tax rate due to higher proportional amortization.

At December 31, 2021, we had available gross unused federal NOL carryforwards of $821 thousand that may be applied against future taxable income through 2031. At December 31, 2021, we had available gross unused state NOL carryforwards of $34.8 million that may be applied against future taxable income through 2036. Utilization of these NOL carryforwards are subject to annual limitations set forth in Section 382 of the U.S. Internal Revenue Code.
In addition, as of December 31, 2021 and 2020, we had income tax credit carryforwards of $23.0 million and $30.2 million. These tax credits, if unused, will expire in 2037.
The following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:
December 31,
($ in thousands)20212020
Deferred tax assets:
Allowance for loan losses$29,746 $24,032 
Stock-based compensation expense1,181 2,182 
Accrued expenses6,198 4,168 
Loan repurchase reserve1,256 1,625 
Federal net operating losses172 272 
State net operating losses2,762 686 
Federal income tax credits23,045 30,225 
Deferred loan fees1,692 1,998 
Amortization of intangible assets— 1,198 
Prior year state tax deduction1,648 443 
Lease liability11,752 6,082 
Other deferred tax assets4,897 2,824 
Total deferred tax assets84,349 75,735 
Deferred tax liabilities:
Unrealized gain on securities available-for-sale(3,172)(3,236)
Investments in partnerships(8,857)(8,139)
Mortgage servicing rights(130)(167)
Amortization of intangible assets(47)— 
Deferred loan costs(4,577)(5,154)
Depreciation on premises and equipment(4,916)(5,618)
Right of use asset(10,240)(5,784)
Other deferred tax liabilities(1,636)(1,680)
Total deferred tax liabilities(33,575)(29,778)
Valuation allowance— — 
Net deferred tax assets$50,774 $45,957 
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income: (i) future reversal of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carryforwards, (iii) taxable income in prior carryback year(s), and (iv) future tax planning strategies. Based on this analysis, management determined, it was more likely than not, that all of the deferred tax assets would be realized; therefore, no valuation allowance was provided against the net deferred tax assets at December 31, 2021 and 2020.
We believe that the future reversing taxable temporary differences, the ability for the Company to utilize tax credits in 2021, and our projection of future taxable income should be considered significant positive evidence that the deferred tax assets for income tax credits will be realized in future periods prior to their expiration dates.
ASC 740-10-25 relates to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10-25 prescribes a threshold and a measurement process for recognizing in the financial statements a tax position taken or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had unrecognized tax benefits of $925 thousand and $924 thousand at December 31, 2021 and 2020. We do not believe that the unrecognized tax benefits will change materially within the next twelve months. As of December 31, 2021, the total unrecognized tax benefit that, if recognized, would impact the effective tax rate was $699 thousand.
At December 31, 2021 and 2020, we had no accrued interest or penalties, respectively. The table below summarizes the activity related to our unrecognized tax benefits for the periods indicated:
Year Ended December 31,
($ in thousands)202120202019
Beginning balance$924 $977 $1,227 
Decrease related to prior year tax positions(59)(6)(101)
Increase in current year tax positions60 120 120 
Decrease related to lapsing of statute of limitations— (167)(269)
Ending balance$925 $924 $977 

In the event we are assessed interest and/or penalties by federal or state tax authorities, such amounts will be classified on the consolidated financial statements as income tax expense.
We are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The statute of limitations for examination by U.S. federal taxing authorities has expired for tax years before 2018. The statute of limitations for the assessment of California franchise taxes has expired for tax years before 2017 (other state income and franchise tax statutes of limitations vary by state).
We account for low income housing tax credit investments under the proportional amortization method. The aggregate funding commitment in these investments totaled $61.3 million and the unfunded portion was $10.3 million as of December 31, 2021. The carrying value of these investments was $39.0 million and $43.2 million at December 31, 2021 and 2020. The proportional amortization of these investments amounted to $4.2 million, $5.3 million and $3.5 million for the years ended December 31, 2021, 2020 and 2019. The tax deduction from these investments totaled $3.7 million, $7.2 million and $7.8 million in 2021, 2020 and 2019. The unused tax credit carryforwards for these investments totaled $13.2 million and $9.0 million as of December 31, 2021 and 2020. For additional information on qualified affordable housing investments, see Note 20 — Variable Interest Entities.