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Income Taxes
 12 Months Ended
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