Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The following presents a summary of income tax provision follows for the years ended December 31:

	Current		Deferred		Total
	(Dollars in thousands)
2019
Federal	$	31,969	$	874	$	32,843
State	21,806		661		22,467
	$	53,775	$	1,535	$	55,310
2018
Federal	$	35,401	$	2,336	$	37,737
State	27,749		406		28,155
	$	63,150	$	2,742	$	65,892
2017
Federal	$	64,910	$	31,464	$	96,374
State	24,739		3,276		28,015
	$	89,649	$	34,740	$	124,389

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). Among other changes, the Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. As of December 31, 2018, the Company completed the accounting for the income tax effects of the Tax Act.

A reconciliation of the difference between the federal statutory income tax rate and the effective tax rate is shown in the following table for the years indicated:

	Year Ended December 31,
	2019		2018		2017
Statutory tax rate	21.00	%	21.00	%	35.00	%
State taxes-net of federal tax effect	8.73	%	8.56	%	7.04	%
Rate change - federal and state	—	%	0.17	%	9.36	%
CRA investment tax credit	(4.93	)%	(3.96	)%	(3.50	)%
Bank owned life insurance	(0.06	)%	(0.20	)%	(0.09	)%
Tax exempt municipal bonds and loans	(0.22	)%	(0.21	)%	(0.45	)%
Nondeductible transaction costs	—	%	—	%	(0.02	)%
Changes in uncertain tax positions	(0.79	)%	—	%	—	%
Other	0.71	%	0.43	%	(0.19	)%
Effective income tax rate	24.44	%	25.79	%	47.15	%

Deferred tax assets and liabilities at December 31, 2019 and 2018 were comprised of the following:

	At December 31,
	2019			2018
	(Dollars in thousands)
Deferred tax assets:
Purchase accounting fair value adjustment	$	10,441		$	16,239
Statutory bad debt deduction less than financial statement provision	23,588			22,904
Net operating loss carry-forward	1,834			2,092
Investment security provision	474			593
State tax deductions	3,810			4,240
Accrued compensation	151			148
Deferred compensation	94			175
Mark to market on loans held for sale	913			260
Depreciation	788			202
Nonaccrual loan interest	5,550			6,027
Other real estate owned	533			585
Unrealized loss on securities available for sale	—			13,631
Non-qualified stock option and restricted share expense	2,348			1,420
Goodwill	31			117
Lease expense	—			60
Lease expense - ROU asset	614			—
Other	2,162			2,013
Total deferred tax assets	$	53,331		$	70,706
Deferred tax liabilities:
FHLB stock dividends	$	(408	)	$	(617	)
Deferred loan costs	(7,441		)	(6,816		)
State taxes deferred and other	(2,516		)	(2,655		)
Prepaid expenses	(1,359		)	(1,802		)
Amortization of intangibles	(3,837		)	(4,524		)
Unrealized gain on securities available for sale	(4,084		)	—
Other	(2,023		)	(3,379		)
Total deferred tax liabilities	$	(21,668	)	$	(19,793	)
Net deferred tax assets	$	31,663		$	50,913

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary.

Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of December 31, 2019 and 2018.

A summary of the Company’s net operating loss carry-forwards is as follows:

	Federal					State
	Remaining Amount		Expires	Annual Limitation		Remaining Amount		Expires	Annual Limitation
	(Dollars in thousands)
2019
Saehan Bank (acquired by Wilshire)	$	2,488	2030	$	226	$	2,488	2030	$	226
Pacific International Bank	5,249		2032	420		—		N/A	—
Total	$	7,737		$	646	$	2,488		$	226
2018
Saehan Bank (acquired by Wilshire)	$	2,714	2030	$	226	$	2,714	2030	$	226
Korea First Bank of New York	494		2019	497		—		N/A	—
Pacific International Bank	5,669		2032	420		—		N/A	—
Total	$	8,877		$	1,143	$	2,714		$	226

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of California and various other states. The statute of limitations for the assessment of taxes for the consolidated Federal income tax return is closed for all tax years up to and including 2015. The expiration of the statute of limitations for the assessment of taxes for the various state income and franchise tax returns for the Company and subsidiaries varies by state. During the year ended December 31, 2019, the Texas Comptroller completed examinations for the 2015, 2016, and 2017 tax years with no adjustments to the tax returns filed. The Company (including Wilshire Bancorp, Inc. a predecessor entity) was under examination by the California Franchise Tax Board (“FTB”) for the 2011, 2012, and 2013 tax years. During the year ended December 31, 2019, the Company has effectively settled positions with the FTB Settlement Bureau for the 2011, 2012, and 2013 tax years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019 and 2018 is as follows:

	Year Ended December 31,
	2019			2018
	(Dollars in thousands)
Balance at January 1,	$	2,314		$	2,125
Additions based on tax positions related to prior years	—			247
Settlements with taxing authorities	(2,173		)	(58		)
Balance at December 31,	$	141		$	2,314

The total amount of unrecognized tax benefits was $141 thousand at December 31, 2019 and $2.3 million at December 31, 2018. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate by $136 thousand and $2.2 million at December 31, 2019 and 2018, respectively. The Company expects the total amount of unrecognized tax benefits to decrease by $141 thousand within the next twelve months due to an anticipated settlement with a state tax authority.

The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company had approximately $34 thousand and $470 thousand accrued for interest expense at December 31, 2019 and 2018, respectively and no amount accrued for penalties.