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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Note 11 — Income Taxes In accordance with the provisions of ASC 740, the Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in thousands) |
Unrecognized tax benefits at beginning of year |  | $ | 258 |  |  | $ | 258 |  |  | $ | — |
Gross increase for new tax positions |  |  | — |  |  |  | — |  |  |  | 258 |
Unrecognized tax benefits at end of year |  | $ | 258 |  |  | $ | 258 |  |  | $ | 258 |
The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $258,000 as of December 31, 2023, 2022 and 2021. The Company records interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of accrued interest was $71,000 and $33,000 at December 31, 2023 and 2022, respectively. The amount of penalties accrued was $112,000 and $44,000 at December 31, 2023 and 2022, respectively. For the years ended December 31, 2023 and 2022, there was no change to unrecognized tax benefits related to California Enterprise Zone hiring credits. For the year ended December 31, 2021, unrecognized tax benefits increased by $258,000 related to California Enterprise Zone hiring credits. We account for interest and penalties related to uncertain tax positions as part of our provision for federal and state income taxes. Accrued interest and penalties are included within accrued expenses and liabilities on the Consolidated Balance Sheets. As of December 31, 2023, the Company is subject to examination by federal and various state tax authorities for certain years ending December 31, 2019 through 2022. As of December 31, 2023, the Company is under audit with the state of California for tax years 2020 and 2021. A summary of the provision for income taxes was as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in thousands) |
Current expense: |  |  |  |  |  |  |  |  |
Federal |  | $ | 26,336 |  |  | $ | 1,310 |  |  | $ | 21,805 |
State |  |  | 13,610 |  |  |  | 304 |  |  |  | 10,901 |
Total current expense |  |  | 39,946 |  |  |  | 1,614 |  |  |  | 32,706 |
Deferred expense (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | (4,980 | ) |  |  | 27,674 |  |  |  | 4,914 |
State |  |  | (426 | ) |  |  | 10,045 |  |  |  | (803 | )
Total deferred expense |  |  | (5,406 | ) |  |  | 37,719 |  |  |  | 4,111 |
Income tax expense |  | $ | 34,540 |  |  | $ | 39,333 |  |  | $ | 36,817 |
Deferred tax assets and liabilities were as follows:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |  |
Provision for credit losses |  | $ | 20,745 |  |  | $ | 21,626 |  |  | $ | 21,671 |
Purchase accounting |  |  | 1,467 |  |  |  | 2,149 |  |  |  | 3,360 |
Net operating loss carryforward |  |  | 13,712 |  |  |  | 14,590 |  |  |  | 15,316 |
Unrealized loss on securities available for sale |  |  | 29,120 |  |  |  | 35,973 |  |  |  | 3,421 |
Lease liability |  |  | 13,729 |  |  |  | 13,029 |  |  |  | 14,712 |
Tax credits |  |  | — |  |  |  | 1,711 |  |  |  | — |
State taxes |  |  | 2,741 |  |  |  | 54 |  |  |  | 2,318 |
Other |  |  | 4,283 |  |  |  | 3,793 |  |  |  | 4,032 |
Total deferred tax assets |  |  | 85,797 |  |  |  | 92,925 |  |  |  | 64,830 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |
Mark to market |  |  | (32,992 | ) |  |  | (38,916 | ) |  |  | (3,531 | )
Depreciation |  |  | (333 | ) |  |  | (1,292 | ) |  |  | (1,292 | )
Leases - right of use assets |  |  | (12,592 | ) |  |  | (11,932 | ) |  |  | (13,738 | )
Other |  |  | (2,790 | ) |  |  | (2,836 | ) |  |  | (2,650 | )
Total deferred tax liabilities |  |  | (48,707 | ) |  |  | (54,976 | ) |  |  | (21,211 | )
Valuation allowance |  |  | (1,864 | ) |  |  | (1,276 | ) |  |  | (1,644 | )
Net deferred tax assets |  | $ | 35,226 |  |  | $ | 36,673 |  |  | $ | 41,975 |
As of each reporting date, management considers the realization of deferred tax assets based on management’s judgment of various future events and uncertainties, including the timing and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized. As of December 31, 2023, management determined that a valuation allowance of $1.9 million was appropriate against certain state net operating losses. For all other deferred tax assets, management believes it was more likely than not that these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. As of December 31, 2022, management determined that a valuation allowance of $1.3 million was appropriate against certain state net operating losses. As of December 31, 2023, the Company had net operating loss carryforwards of $7.2 million and $190.9 million for federal and state income tax purposes, respectively. The federal net operating loss carryforwards of $7.2 million expire at various dates from 2034 to 2035. The state net operating loss carryforwards include California of $128.9 million which expire at various dates from 2031 through 2035, and Illinois of $62.0 million which expire at various dates from 2035-2036. Management determined that a partial valuation allowance was required against the Illinois net operating loss carryforwards. As of December 31, 2023, the Company had no remaining low income housing tax credit carryforwards. Reconciliation between the federal statutory income tax rate and the effective tax rate is shown in the following table:
|  | Year Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Federal statutory income tax rate |  |  | 21.00 | % |  |  | 21.00 | % |  |  | 21.00 | %
State taxes, net of federal tax benefits |  |  | 9.06 |  |  |  | 7.33 |  |  |  | 5.81 |
Tax credit - federal |  |  | (1.52 | ) |  |  | (1.30 | ) |  |  | (1.16 | )
Low-income housing amortization |  |  | 1.64 |  |  |  | 1.34 |  |  |  | 1.37 |
Other |  |  | (0.03 | ) |  |  | (0.42 | ) |  |  | 0.16 |
Effective tax rate |  |  | 30.15 | % |  |  | 27.95 | % |  |  | 27.18 | %

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