Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10. Income Taxes 

For the years ended December 31, 2021, 2020, and 2019, the current and deferred amounts of the income tax expense are summarized as follows:

	Year Ended December 31,
	2021		2020			2019
	(In thousands)
Current:
Federal	$	29,955	$	(2,196	)	$	20,943
State		44,416		36,787			39,466
Total Current	$	74,371	$	34,591		$	60,409
Deferred:
Federal	$	5,986	$	(3,234	)	$	7,464
State		3,182		(6,252	)		2,361
Total Deferred	$	9,168	$	(9,486	)	$	9,825
Total income tax expense	$	83,539	$	25,105		$	70,234

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, 2021, and at December 31, 2020, are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:

	As of December 31,
	2021			2020
	(In thousands)
Deferred Tax Assets
Loan loss allowance, due to differences in computation of bad debts	$	43,895		$	52,899
Share-based compensation		—			1,936
Accrual for bonuses		4,935			3,356
Non-accrual interest		1,117			861
Write-down on equity securities and venture capital investments		2,000			1,833
State tax		4,691			3,882
Unrealized loss on interest rate swaps		1,394			2,934
Tax credits carried forward		9,136			9,136
Net operating loss carried forward		8,732			10,880
Other, net		3,765			3,864
Gross deferred tax assets		79,665			91,581
Deferred Tax Liabilities
Deferred loan costs		(9,936	)		(10,017	)
Depreciation and amortization		(3,150	)		(2,709	)
Unrealized gain on securities		(3,823	)		(8,712	)
OREO Installment Sale		(1,273	)		(1,274	)
Dividends on Federal Home Loan Bank common stock		(978	)		(979	)
Other, net		(2,168	)		(3,599	)
Gross deferred tax liabilities		(21,328	)		(27,290	)
Net deferred tax assets	$	58,337		$	64,291

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, 2021, 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 $18.4 million for which a deferred tax asset of $3.87 million has been recorded reflecting the expected benefit of these federal NOL carryovers. At December 31, 2021, the Company has California NOL carryovers of $45.9 million for which a California deferred tax asset of $4.5 million has been recorded reflecting the expected benefit of these California NOL carryovers. The annual IRC Section 382 limitation is $10.2 million in 2021, $8.8 million in 2022 and decreases 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 2031. At December 31, 2021, the Company’s federal tax credit carryovers and AMT tax credit carryovers total $7.5 million and $1.0 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 $41.1 million at December 31, 2021, and $19.5 million at December 31, 2020. 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 2018 and by the California Franchise Tax Board back to 2017. The audit by the Internal Revenue Service for 2017 was completed in July 2020 and did not have a material impact on income tax expense. 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,
	2021					2020					2019
	(Dollars in thousands)
Tax provision at Federal statutory rate	$	80,187		21.0	%	$	53,333		21.0	%	$	73,368		21.0	%
State income taxes, net of Federal income tax benefit		37,602		9.8			23,602		9.3			33,276		9.5
Excess deduction for stock option and RSUs		(20	)	(0.0	)		264		0.1			(398	)	(0.1	)
Low income housing and other tax credits		(32,795	)	(8.6	)		(52,979	)	(20.8	)		(37,519	)	(10.7	)
Other, net		(1,435	)	(0.4	)		885		0.3			1,507		0.4
Total income tax expense	$	83,539		21.9	%	$	25,105		9.9	%	$	70,234		20.1	%