Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

11) Income Taxes

Income tax expense consisted of the following for the year ended December 31, as follows:

	2023		2022		2021
	(Dollars in thousands)
Currently payable tax:
Federal	$	15,888	$	18,994	$	10,207
State		9,241		8,798		7,988
Total currently payable		25,129		27,792		18,195
Deferred tax expense (benefit):
Federal		616		(1,237)		1,175
State		231		1,256		(1,200)
Total deferred tax		847		19		(25)
Income tax expense	$	25,976	$	27,811	$	18,170

The effective tax rate differs from the Federal statutory rate for the years ended December 31, as follows:

	2023		2022		2021
Statutory Federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	8.3	%	8.4	%	8.1	%
Stock option/restricted stock windfall tax benefit	0.1	%	(0.1)	%	(0.2)	%
Increase in cash surrender value of life insurance	(0.5)	%	(0.4)	%	(0.6)	%
Low income housing credits, net of investment losses	(0.2)	%	(0.2)	%	(0.3)	%
Non-taxable interest income	(0.2)	%	(0.2)	%	(0.5)	%
Split-dollar term insurance	0.0	%	0.0	%	0.1	%
ISO stock exercise	0.0	%	0.0	%	(0.1)	%
Other, net	0.2	%	1.0	%	0.1	%
Effective tax rate	28.7	%	29.5	%	27.6	%

Deferred tax assets and liabilities that result from the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes at December 31, are as follows:

	2023		2022
	(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses on loans	$	14,087	$	14,171
Lease accounting		9,304		9,703
Defined postretirement benefit obligation		7,778		7,585
Accrued expenses		3,150		3,440
Securities available-for-sale		2,897		4,690
State income taxes		1,874		1,924
Stock compensation		1,501		1,363
Federal net operating loss carryforwards		1,403		1,719
Premises and equipment		1,375		1,677
California net operating loss carryforwards		986		1,106
Nonaccrual interest		135		174
Split-dollar life insurance benefit plan		71		49
Other		323		201
Total deferred tax assets		44,884		47,802
Deferred tax liabilities:
Lease accounting		(9,304)		(9,703)
Loan fees		(2,315)		(2,304)
Intangible liabilities		(1,639)		(1,940)
Prepaid expenses		(1,473)		(1,304)
FHLB stock		(156)		(156)
I/O strips		(30)		(40)
Other		(202)		(179)
Total deferred tax liabilities		(15,119)		(15,626)
Net deferred tax assets	$	29,765	$	32,176

At December 31, 2023, the Company's federal net operating loss (“NOL”) carryforwards were $6,682,000 and the Company's California net operating loss carryforwards were $11,505,000. These amounts are attributable to the prior merger transactions. The realization of these NOL carryforwards for Federal and State tax purposes are limited on the amount of net operating losses that can be utilized annually under the current tax law. The above NOL carryforwards are presented net of the losses that will expire unutilized under current tax law. Since the NOL carryforwards are already presented net of the amounts that will expire by operation of current tax law, there is no need for a valuation allowance as the Company fully expects to utilize the amounts disclosed.

Under generally accepted accounting principles, a valuation allowance is required if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. As of December 31, 2023 and 2022 the Company’s recorded amount of uncertain tax positions was not considered significant for financial reporting and the Company does not expect this amount to significantly increase or decrease in the next twelve months.

At December 31, 2023 and December 31, 2022, the Company had net deferred tax assets of $29,765,000 and $32,176,000, respectively. At December 31, 2023 and December 31, 2022, management determined that a valuation allowance for deferred tax assets was not necessary.

The Company and its subsidiaries are subject to U.S. Federal income tax as well as income tax of the State of California. The Company is no longer subject to examination by Federal and state taxing authorities for years before 2020, and by the State of California taxing authority for years before 2019.

The following table reflects the carrying amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments included in accrued interest payable and other liabilities for the periods indicated:

	December 31,		December 31,
	2023		2022
	(Dollars in thousands)
Low income housing investments	$	2,794	$	3,537
Future commitments	$	494	$	523

The Company expects $14,000 of the future commitments to be paid in 2024, and $480,000 in 2025 through 2026.

For tax purposes, the Company recognized low income housing tax credits of $720,000 and $839,000 for the years ended December 31, 2023 and December 31, 2022, respectively, and low income housing investment expense of $743,000 and $842,000, respectively.  The Company recognizes low income housing investment expenses as a component of income tax expense.