Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12.         Income Taxes

For the years ended December 31, 2022, 2021, and 2020, the current and deferred amounts of the income tax expense are summarized as follows:

	Year Ended December 31,
	2022			2021		2020
	(In thousands)
Current:
Federal	$	57,029		$	29,955	$	(2,196	)
State		56,953			44,416		36,787
Total Current	$	113,982		$	74,371	$	34,591
Deferred:
Federal	$	(1,776	)	$	5,986	$	(3,234	)
State		(312	)		3,182		(6,252	)
Total Deferred	$	(2,088	)	$	9,168	$	(9,486	)
Total income tax expense	$	111,894		$	83,539	$	25,105

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 as of December 31, 2022 and 2021, are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:

	As of December 31,
	2022			2021
	(In thousands)
Deferred Tax Assets
Loan loss allowance, due to differences in computation of bad debts	$	47,673		$	43,895
Accrual for bonuses		2,591			4,935
Non-accrual interest		1,572			1,117
Write-down on equity securities and venture capital investments		1,975			2,000
State tax		6,251			4,691
Unrealized loss on interest rate swaps		—			1,394
Unrealized loss on securities available-for-sale, net		40,400			—
Tax credits carried forward		9,136			9,136
Net operating loss carried forward		5,916			8,732
Other, net		4,711			3,765
Gross deferred tax assets	$	120,225		$	79,665
Deferred Tax Liabilities
Deferred loan costs	$	(10,025	)	$	(9,936	)
Depreciation and amortization		(2,856	)		(3,150	)
Unrealized gain on interest rate swaps		(1,364	)		—
Unrealized gain on securities available-for-sale, net		—			(3,823	)
OREO Installment Sale		—			(1,273	)
Dividends on Federal Home Loan Bank common stock		(981	)		(978	)
Other, net		(3,506	)		(2,168	)
Gross deferred tax liabilities	$	(18,732	)	$	(21,328	)
Net deferred tax assets	$	101,493		$	58,337

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, 2022, 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 $9.6 million for which a deferred tax asset of $2.02 million has been recorded reflecting the expected benefit of these federal NOL carryovers. At December 31, 2022, the Company has California NOL carryovers of $39.4 million for which a California deferred tax asset of $3.9 million has been recorded reflecting the expected benefit of these California NOL carryovers. The annual IRC Section 382 limitation was $8.8 million in 2022 and $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, 2022, 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 to 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 $16.7 million as of December 31, 2022, and $41.1 million as of December 31, 2021. 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 2019 and by the California Franchise Tax Board back to 2018. The audit by the Internal Revenue Service for 2017 was completed in July 2020 and did not have an 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,
	2022					2021					2020
	(Dollars in thousands)
Tax provision at Federal statutory rate	$	99,233		21.0	%	$	80,187		21.0	%	$	53,333		21.0	%
State income taxes, net of Federal income tax benefit		44,837		9.5			37,602		9.8			23,602		9.3
Excess deduction for stock option and RSUs		(140	)	—			(20	)	—			264		0.1
Low income housing and other tax credits		(34,231	)	(7.2	)		(32,795	)	(8.6	)		(52,979	)	(20.8	)
Other, net		2,195		0.4			(1,435	)	(0.3	)		885		0.3
Total income tax expense	$	111,894		23.7	%	$	83,539		21.9	%	$	25,105		9.9	%