Income Taxes

12 Months Ended

Dec. 31, 2022

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)
2022
Federal	$	52,676	$	(6,366)	$	46,310
State	34,050		(2,589)		31,461
	$	86,726	$	(8,955)	$	77,771
2021
Federal	$	28,382	$	12,599	$	40,981
State	22,692		7,027		29,719
	$	51,074	$	19,626	$	70,700
2020
Federal	$	28,284	$	(11,079)	$	17,205
State	20,490		(6,919)		13,571
	$	48,774	$	(17,998)	$	30,776

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,
	2022		2021		2020
Statutory tax rate	21.00	%	21.00	%	21.00	%
State taxes-net of federal tax effect	8.58	%	8.59	%	8.56	%
CRA investment tax credit	(2.99)	%	(3.75)	%	(7.34)	%
Bank owned life insurance	(0.22)	%	(0.17)	%	(0.05)	%
Tax exempt municipal bonds and loans	(0.26)	%	(0.17)	%	(0.38)	%
State tax rate change	0.15	%	(0.04)	%	(2.76)	%
Changes in uncertain tax positions	(0.23)	%	0.07	%	1.63	%
Other	0.24	%	0.15	%	0.97	%
Effective income tax rate	26.27	%	25.68	%	21.63	%

Deferred tax assets and liabilities at December 31, 2022 and 2021 were comprised of the following:

	December 31,
	2022		2021
	(Dollars in thousands)
Deferred tax assets:
Statutory bad debt deduction less than financial statement provision	$	53,225	$	46,367
Net operating loss carry-forward	1,396		1,552
Investment security provision	469		469
State tax deductions	5,210		3,403
Accrued compensation	45		86
Deferred compensation	107		103
Mark to market on loans held for sale	3		1,721
Nonaccrual loan interest	4,044		4,290
Other real estate owned	455		421
Non-qualified stock option and restricted share expense	4,322		3,122
Lease liabilities	18,751		18,209
Unrealized loss on securities available for sale	96,319		4,583
Other	8,178		5,782
Total deferred tax assets	$	192,524	$	90,108
Deferred tax liabilities:
Purchase accounting fair value adjustment	$	(6,583)	$	(5,978)
Depreciation	(293)		(6)
FHLB stock dividends	(332)		(257)
Deferred loan costs	(9,983)		(10,615)
State taxes deferred and other	(3,875)		(3,332)
Prepaid expenses	(1,677)		(942)
Amortization of intangibles	(1,908)		(2,513)
ROU asset	(17,464)		(16,746)
Total deferred tax liabilities	$	(42,115)	$	(40,389)
Net deferred tax assets	$	150,409	$	49,719

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, 2022 and 2021.

A summary of the Company’s net operating loss carry-forwards as of December 31, 2022 and 2021 is as follows:

	Federal					State
	Remaining Amount		Expires	Annual Limitation		Remaining Amount		Expires	Annual Limitation
	(Dollars in thousands)
2022
Saehan Bank (acquired by Wilshire)	$	1,809	2030	$	226	$	2,261	2032	$	226
Pacific International Bank	3,989		2032	420		—		N/A	—
Total	$	5,798		$	646	$	2,261		$	226
2021
Saehan Bank (acquired by Wilshire)	$	2,035	2030	$	226	$	2,488	2032	$	—
Pacific International Bank	4,409		2032	420		—		N/A	—
Total	$	6,444		$	646	$	2,488		$	—

In 2020, the California Assembly Bill 85 (A.B. 85) was signed into law. A.B. 85 suspends the use of the net operating loss (“NOL”) for the 2020, 2021, and 2022 tax years. For NOL incurred in tax years before 2020 for which a deduction is denied, the carryover period is extended by three years. On February 9, 2022, Senate Bill 113 (“S.B. 113”) was signed into law, and among other changes, S.B. reinstates the California NOL deductions for tax years beginning in 2022, in effect shortening the suspension period for NOL deductions from A.B. 85 by one year.

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 2018. 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. The Company is currently under examination by the New York City Department of Finance for the 2016, 2017 and 2018 tax years. While the outcome of the examination is unknown, the Company expects no material adjustments.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2022 and 2021 is as follows:

	Year Ended December 31,
	2022		2021
	(Dollars in thousands)
Balance at January 1,	$	3,278	$	2,750
Additions based on tax positions related to prior years	434		528
Expiration of statute of limitations	(761)		—
Balance at December 31,	$	2,951	$	3,278

The total amount of unrecognized tax benefits was $3.0 million at December 31, 2022 and $3.3 million at December 31, 2021. The total amount of tax benefits, if recognized, would favorably impact the effective tax rate by $2.6 million and $2.9 million at December 31, 2022 and 2021, respectively. The Company expects the total amount of unrecognized tax benefits to decrease by approximately $1.2 million within the next twelve months due to an anticipated settlement with a state tax authority and the expiration of statute of limitations.

The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company had approximately $359 thousand and $387 thousand accrued for interest expense at December 31, 2022 and 2021, respectively and no amount accrued for penalties.