Income Taxes

12 Months Ended

Dec. 31, 2025

Income Taxes [Abstract]

Income Taxes

Note 17—Income Taxes

Pretax income from continuing operations is all from domestic activities. The Company has no foreign operations or foreign tax expense. The components of income tax expense (benefit) are as follows:

	Year Ended December 31,
(Dollars in thousands)	2025		2024		2023
Income tax expense (benefit)
Current:
Federal	$	10,871	$	14,196	$	23,025
State		1,981		8,574		10,817
Total current income tax expense		12,852		22,770		33,842
Deferred:
Federal		13,803		7,284		(6,546	)
State		8,516		3,733		943
Total deferred income tax expense (benefit)		22,319		11,017		(5,603	)
Total provision for income tax expense	$	35,171	$	33,787	$	28,239

The combined federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows and is presented on a retrospective basis under ASU 2023-09:

	Year Ended December 31,
	2025						2024						2023
(Dollars in thousands)	Amount			Rate			Amount			Rate			Amount			Rate
Effective income tax rate
Federal statutory rate	$	27,043			21.00	%	$	25,671			21.00	%	$	24,476			21.00	%
State taxes, net of federal income tax benefit*		8,119			6.30	%		9,730			7.96	%		9,290			7.97	%
Tax credits
Low-income housing tax credits		(5,560	)		(4.32	%)		(4,253	)		(3.48	%)		(3,528	)		(3.03	%)
Nontaxable and nondeductible items
Bank-owned life insurance		(558	)		(0.43	%)		(521	)		(0.43	%)		(1,338	)		(1.15	%)
Tax-exempt interest income, net of TEFRA		(780	)		(0.61	%)		(512	)		(0.45	%)		(470	)		(0.40	%)
Other		164			0.13	%		123			0.10	%		76			0.07	%
Nondeductible items		5,250			4.08	%		-			-			-			-
Other
Compensation expense		(3,685	)		(2.86	%)		(137	)		(0.11	%)		(267	)		(0.23	%)
Tax effect of low-income housing tax credit losses		(1,137	)		(0.88	%)		(921	)		(0.75	%)		-			-
Low-income housing tax credit amortization		6,031			4.68	%		4,566			3.73	%		-			-
Other, net		284			0.22	%		41			0.07	%		-			-
Total income tax expense and effective tax rate	$	35,171			27.31	%	$	33,787			27.64	%	$	28,239			24.23	%

*State taxes in California made up the majority (greater than 50%) of the tax effect in the category.

The increase in compensation expense deduction above is related to the distribution of deferred compensation (non-qualified retirement plans).

The cash paid for income taxes (net of refunds) during the year was as follows:

	Year Ended December 31,
(Dollars in thousands)	2025		2024		2023
Payments:
Federal	$	4,255	$	3,805	$	-
State and local:
California		10,431		9,116		12,647
Other		253		28		15
Total income taxes paid	$	14,939	$	12,949	$	12,662

The components of net deferred tax assets and liabilities at the periods shown are summarized as follows:

	December 31,
(Dollars in thousands)	2025			2024
Deferred tax assets:
Allowance for credit losses	$	23,688		$	23,185
Deferred compensation		4,110			23,849
Unrealized losses on debt securities		1,594			8,250
Accrued liabilities		4,097			3,685
Loss carryforwards		1,863			476
State income taxes		522			1,793
Lease liabilities		489			692
Tax credit carry forward		21,351			2,402
Acquired loans fair valuation and other		437			188
Total deferred tax assets		58,151			64,520
Deferred tax liabilities:
Commercial leasing	$	(30,297	)	$	(25,704	)
Premises and equipment		(2,144	)		(2,034	)
Deferred loan and lease costs		(902	)		(936	)
Right of use leasing asset		(459	)		(659	)
Core deposit intangible asset		(345	)		(499	)
Accretion on investment securities		(1,782	)		(1,200	)
FHLB dividends		(348	)		(348	)
Investments (other K-1s)		(75	)		(225	)
Prepaid assets		(17	)		(17	)
Total deferred tax liabilities		(36,369	)		(31,622	)
Net deferred tax assets	$	21,782		$	32,898

The Company believes, based on available information, that more likely than not, the net deferred tax asset will be realized in the normal course of operations. Accordingly, no valuation allowance has been recorded at December 31, 2025 or 2024. The decrease in net deferred tax assets of $11.1 million was primarily due to a decrease in unrealized losses on debt securities and an increase in deferred tax liabilities from commercial leasing activities.

As of December 31, 2025 and 2024, the Company had federal net operating loss carryovers of $8.0 million and $1.6 million, respectively. The $1.6 million in federal net operating loss carryover expires in 2036, but the rest can be carried forward indefinitely. As of December 31, 2025 and 2024, the Company also had a state net operating loss carryforward of $1.7 million which expires in 2036. The Company had $21.4 million and $2.4 million in federal tax credit carry-forwards as of December 31, 2025 and December 31, 2024, respectively. The tax credit carry-forwards have expiration dates ranging from 2026 to 2042, for low-income housing tax credits. The significant increase in carry-forward tax credits results from the reduction in taxable income, resulting in limitations to fully utilize tax credits that were generated in 2025.

The impact of a tax position is recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company believes that it has no material uncertain tax positions in the consolidated financial statements as of December 31, 2025 or 2024.

The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The 2022 through 2025 federal tax years and the 2021 through 2025 state tax years remain subject to selection for examination as of December 31, 2025. The IRS is in the process of reviewing the Company’s 2023 tax return including inquiries related to certain leasing investment tax credits. The timing of when the IRS review will be complete and the potential outcome of the IRS review are both uncertain at this time.