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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Note 16. Income Taxes Provision for Income Taxes The components of the Company’s provision for income taxes for the years ended December 31, 2024, 2023 and 2022 were as follows:
(dollars in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 56,974 |  |  | $ | 59,084 |  |  | $ | 59,855 |
State |  |  | 3,103 |  |  |  | 8,035 |  |  |  | 7,688 |
Total Current |  |  | 60,077 |  |  |  | 67,119 |  |  |  | 67,543 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | (8,805 | ) |  |  | (8,800 | ) |  |  | (3,247 | )
State |  |  | (3,415 | ) |  |  | (2,405 | ) |  |  | 534 |
Total Deferred |  |  | (12,220 | ) |  |  | (11,205 | ) |  |  | (2,713 | )
Provision for Income Taxes |  | $ | 47,857 |  |  | $ | 55,914 |  |  | $ | 64,830 |
The tax effects of fair value adjustments on AFS investment securities, the amortization of unrealized gains and losses related to investment securities transferred to HTM, and the minimum pension liability adjustment are recorded directly to consolidated shareholders’ equity as a component of accumulated other comprehensive loss. The net tax charge recorded was $19.2 million and $13.7 million for the years ended December 31, 2024 and 2023, respectively, compared to a benefit of $132.7 million for the year ended December 31, 2022. Excess tax benefits related to share-based compensation are recorded as a reduction of the provision for income taxes. Deferred Tax Assets and Liabilities As of December 31, 2024 and 2023, significant components of the Company’s deferred tax assets and liabilities were as follows:
|  | December 31, |
(dollars in thousands) |  | 2024 |  |  | 2023 |
Deferred Tax Assets: |  |  |  |  |  |
Allowance for Credit Losses |  | $ | 39,907 |  |  | $ | 40,370 |
Minimum Pension Liability |  |  | 8,439 |  |  |  | 8,390 |
Accrued Expenses |  |  | 22,361 |  |  |  | 20,020 |
Operating Lease Right-of-Use Assets |  |  | 23,538 |  |  |  | 25,102 |
Net Unrealized Losses on Investments Securities |  |  | 115,416 |  |  |  | 134,685 |
Low Income Housing Investments |  |  | 8,512 |  |  |  | 4,569 |
Other |  |  | 29,279 |  |  |  | 27,756 |
Gross Deferred Tax Assets Before Valuation Allowance |  |  | 247,452 |  |  |  | 260,892 |
Valuation Allowance |  |  | (9,740 | ) |  |  | (6,728 | )
Gross Deferred Tax Assets After Valuation Allowance |  |  | 237,712 |  |  |  | 254,164 |
Deferred Tax Liabilities: |  |  |  |  |  |
Accelerated Depreciation |  |  | (2,904 | ) |  |  | (8,513 | )
Accrued Pension Cost |  |  | (11,270 | ) |  |  | (11,270 | )
Lease Transactions |  |  | (20,234 | ) |  |  | (22,571 | )
Operating Lease Liabilities |  |  | (21,251 | ) |  |  | (22,826 | )
Other |  |  | (12,540 | ) |  |  | (14,368 | )
Gross Deferred Tax Liabilities |  |  | (68,199 | ) |  |  | (79,548 | )
Net Deferred Tax Assets |  | $ | 169,513 |  |  | $ | 174,616 |
Both positive and negative evidence were considered by management in determining the need for a valuation allowance. Negative evidence included the uncertainty regarding the generation of capital gains in future years and restrictions on the ability to sell low-income housing investments during periods when carrybacks/carryforwards of capital losses are allowed. Positive evidence included capital gains in the carryback years. After considering all available evidence, management determined that a valuation allowance to offset deferred tax assets related to low-income housing investments that can only be used to offset capital gains was appropriate. Management determined that a valuation allowance was not required for the remaining deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing taxable temporary differences, and there will be sufficient future taxable income exclusive of reversing temporary differences. As of December 31, 2024 and 2023, the Company carried a valuation allowance of $9.7 million and $6.7 million, respectively, related to the deferred tax assets established in connection with the low-income housing investments. Certain events covered by Internal Revenue Code Section 593(e) will trigger a recapture of base year reserves of acquired thrift institutions. The base year reserves of acquired thrift institutions would be recaptured if an entity ceases to qualify as a bank for federal income tax purposes. The base year reserves of thrift institutions also remain subject to income tax penalty provisions that, in general, require recapture upon certain stock redemptions of, and excess distributions to, shareholders. As of December 31, 2024, retained earnings included $18.2 million of base year reserves for which the deferred federal income tax liability of $4.8 million has not been recognized. Effective Tax Rate The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2024, 2023 and 2022:
|  | 2024 |  |  | 2023 |  |  | 2022 |
(dollars in thousands) |  | Amount |  | Percent |  |  | Amount |  | Percent |  |  | Amount |  | Percent |
Statutory Federal Income Tax Expense and Rate |  | $ | 41,549 |  |  | 21.00 | % |  | $ | 47,694 |  |  | 21.00 | % |  | $ | 61,033 |  |  | 21.00 | %
State Taxes, Net of Federal Income Tax Benefit |  |  | 343 |  |  | 0.17 |  |  |  | 5,005 |  |  | 2.20 |  |  |  | 6,041 |  |  | 2.08 |
Tax credits |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Low-Income Housing Investments Amortization, Net of Tax Benefits |  |  | 5,731 |  |  | 2.90 |  |  |  | 2,797 |  |  | 1.23 |  |  |  | 5,118 |  |  | 1.76 |
Investment Tax Credits |  |  | (1,041 | ) |  | (0.53 | ) |  |  | (845 | ) |  | (0.37 | ) |  |  | (822 | ) |  | (0.28 | )
Changes in valuation allowances |  |  | 2,237 |  |  | 1.13 |  |  |  | 263 |  |  | 0.12 |  |  |  | (460 | ) |  | (0.16 | )
Nontaxable or nondeductible items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nondeductible Compensation |  |  | 2,306 |  |  | 1.17 |  |  |  | 1,801 |  |  | 0.79 |  |  |  | 1,161 |  |  | 0.40 |
Bank-Owned Life Insurance |  |  | (2,852 | ) |  | (1.44 | ) |  |  | (2,419 | ) |  | (1.07 | ) |  |  | (2,091 | ) |  | (0.72 | )
Tax-Exempt Income |  |  | (1,779 | ) |  | (0.90 | ) |  |  | (1,138 | ) |  | (0.50 | ) |  |  | (568 | ) |  | (0.20 | )
Other reconciling items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other |  |  | 1,363 |  |  | 0.69 |  |  |  | 2,756 |  |  | 1.21 |  |  |  | (4,582 | ) |  | (1.58 | )
Income Tax Expense and Effective Tax Rate |  | $ | 47,857 |  |  | 24.19 | % |  | $ | 55,914 |  |  | 24.62 | % |  | $ | 64,830 |  |  | 22.31 | %
Unrecognized Tax Benefits The Company is required to record a liability, referred to as an unrecognized tax benefit (“UTB”), for the entire amount of benefit taken in a prior or future income tax return when the Company determines that a tax position has a less than 50% likelihood of being accepted by the taxing authority. The following presents a reconciliation of the Company’s liability for UTBs for the years ended December 31, 2024, 2023 and 2022:
(dollars in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |
Unrecognized Tax Benefits at Beginning of Year |  | $ | 3,737 |  |  | $ | 3,696 |  |  | $ | 4,015 |
Gross Increases, Related to Tax Positions Taken in a Prior Period |  |  | 1,276 |  |  |  | 54 |  |  |  | 1 |
Gross Decreases, Related to Tax Positions Taken in a Prior Period |  |  | — |  |  |  | — |  |  |  | (26 | )
Gross Increases, Related to Current Period Tax Positions |  |  | 540 |  |  |  | 27 |  |  |  | 226 |
Lapse of Statute of Limitations |  |  | (213 | ) |  |  | (40 | ) |  |  | (520 | )
Unrecognized Tax Benefits at End of Year |  | $ | 5,340 |  |  | $ | 3,737 |  |  | $ | 3,696 |
As of December 31, 2024 and 2023, $5.3 million and $3.7 million, respectively, in liabilities for UTBs were related to UTBs that if reversed would have an impact on the Company’s effective tax rate. The Company classifies interest and penalties, if any, related to the liability for UTBs as a component of the provision for income taxes. The recorded net tax expense for interest and penalties was $0.3 million for the year ended December 31, 2024. The recorded net tax benefit for interest and penalties was less than $0.1 million for the years ended December 31, 2023 and 2022. As of December 31, 2024 and 2023, the balance of the accrual for possible interest and penalties was $1.4 million and $1.1 million, respectively. The federal tax returns for 2021 through 2023 remain subject to examination. The Company's State of Hawaiʻi income tax returns for 2017 and 2021 through 2023 remain subject to examination by the taxing authorities. The following table presents cash paid for federal and state income taxes for the years ended December 31, 2024, 2023 and 2022.
(dollars in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |
Cash Paid for Federal Income Taxes |  | $ | 21,650 |  |  | $ | 42,500 |  |  | $ | 42,700 |
Cash Paid for State Income Taxes |  |  | 9,590 |  |  |  | 9,746 |  |  |  | 10,325 |
Total Cash Paid for Income Taxes |  | $ | 31,240 |  |  | $ | 52,246 |  |  | $ | 53,025 |

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