Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10. Income Taxes

For the years ended December 31, 2019, 2018, and 2017, the current and deferred amounts of the income tax expense are summarized as follows:

	Year Ended December 31,
	2019		2018		2017
	(In thousands)
Current:
Federal	$	20,943	$	26,820	$	59,433
State		39,466		36,639		28,278
Total Current	$	60,409	$	63,459	$	87,711
Deferred:
Federal	$	7,464	$	1,495	$	31,818
State		2,361		848		2,736
Total Deferred	$	9,825	$	2,343	$	34,554
Total income tax expense	$	70,234	$	65,802	$	122,265

Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities give rise to deferred taxes. Net deferred tax assets at December 31, 2019, and at December 31, 2018, are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:

	As of December 31,
	2019			2018
	(In thousands)
Deferred Tax Assets
Loan loss allowance, due to differences in computation of bad debts	$	38,936		$	37,567
Share-based compensation		2,945			3,260
Non-accrual interest		1,005			2,277
Write-down on equity securities and venture capital investments		2,010			2,095
Depreciation and amortization		—			3,798
State tax		4,540			4,344
Unrealized loss on interest rate swaps		1,599			190
Unrealized loss on securities available-for-sale, net		—			3,864
Unrealized loss on equity securities		—			843
Tax credits carried forward		9,473			9,473
Net operating loss carried forward		14,247			17,098
Other, net		5,012			4,782
Gross deferred tax assets		79,767			89,591
Deferred Tax Liabilities
Deferred loan costs		(9,778	)		(8,839	)
Depreciation and amortization		(1,606	)		—
Unrealized gain on securities available-for-sale, net		(5,990	)		—
Unrealized gain on equity securities		(668	)		—
Dividends on Federal Home Loan Bank common stock		(978	)		(956	)
Other, net		(3,307	)		(4,008	)
Gross deferred tax liabilities		(22,327	)		(13,803	)
Net deferred tax assets	$	57,440		$	75,788

Amounts for the current year are based upon estimates and assumptions and could vary from amounts shown on the tax returns as filed.

As of December 31, 2019, the Company’s gross net operating loss (“NOL”) carryovers, all of which are subject to limitation under Section 382 of the Internal Revenue Code, totaled approximately $43.0 million for which a deferred tax asset of $9.0 million has been recorded reflecting the expected benefit of these federal NOL carryovers. At December 31, 2019, the Company has California NOL carryovers of $52.8 million for which a California deferred tax asset of $5.2 million has been recorded reflecting the expected benefit of these California NOL carryovers. The annual IRC Section 382 limitation is $10.2 million per year until 2021 and decreases to $8.8 million in 2022 and to $7.3 million per year thereafter. If not utilized, a portion of the Company’s federal and state NOL’s will begin to expire in 2030. At December 31, 2019, the Company’s federal tax credit carryovers and AMT tax credit carryovers total $7.7 million and $1.1 million, respectively. If not utilized, the federal tax credit carryovers will begin in expire in 2028. The AMT tax credit carryovers can be carried forward indefinitely.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize all benefits related to these deductible temporary differences.

The Company had current income tax receivables of $9.6 million at December 31, 2019, and $9.0 million at December 31, 2018. Current income tax receivable is included in other assets in the accompanying Consolidated Balance Sheets.

The Company’s tax returns are open for audits by the Internal Revenue Service back to 2016 and by the California Franchise Tax Board back to 2015. The Company is currently under audit by the Internal Revenue Service for 2017. It is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate.

Income tax expense results in effective tax rates that differ from the statutory federal income tax rate for the years indicated as follows:

	Year Ended December 31,
	2019					2018					2017
	(Dollars in thousands)
Tax provision at Federal statutory rate	$	73,368		21.0	%	$	70,914		21.0	%	$	104,407		35.0	%
State income taxes, net of Federal income tax benefit		33,276		9.5			29,750		8.8			20,616		6.9
Deferred taxes write-down due to Tax Cuts and Jobs Act		—		—			—		—			23,365		7.8
Excess deduction for stock option and RSUs		(398	)	(0.1	)		(555	)	(0.2	)		(3,146	)	(1.0	)
Non-taxable bargain purchase gain		—		—			(71	)	—			(1,970	)	(0.7	)
Low income housing and other tax credits		(37,519	)	(10.7	)		(34,517	)	(10.2	)		(20,656	)	(6.9	)
Other, net		1,507		0.4			281		0.1			(351	)	(0.1	)
Total income tax expense	$	70,234		20.1	%	$	65,802		19.5	%	$	122,265		41.0	%