BANC OF CALIFORNIA, INC.BANC
BANC OF CALIFORNIA, INC. Income Taxes Disclosure
INCOME TAXES
The following table presents the components of income tax expense for the years indicated:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current Tax Expense: | |||||||||||||||||
| Federal | $ | 46,763 | $ | 45,554 | $ | 34,219 | |||||||||||
| State | 1,611 | 1,156 | 3,387 | ||||||||||||||
| Total current tax expense | 48,374 | 46,710 | 37,606 | ||||||||||||||
| Deferred Tax (Benefit) Expense: | |||||||||||||||||
| Federal | 5,518 | (6,082) | (238,865) | ||||||||||||||
| State | 30,210 | 1,138 | (110,942) | ||||||||||||||
| Total deferred tax (benefit) expense | 35,728 | (4,944) | (349,807) | ||||||||||||||
| Total income tax (benefit) expense | $ | 84,102 | $ | 41,766 | $ | (312,201) | |||||||||||
For the year ended December 31, 2025, the Company generated income before income taxes totaling $313 million, all of which was attributable to U.S. income. The Company does not have operations located outside the U.S.
In December 2023, the FASB issued ASU 2023-09, "Improvement to Income Tax Disclosure," which aims to enhance income tax disclosures with the intention to provide investors with better understanding of an entity’s global operations, effective tax rates and tax risks in making capital investment decisions. The new standard requires tax rate reconciliation to be segmented into eight standardized categories and to disaggregate items meeting or exceeding a 5% threshold.
Public business entities are required to adopt ASU 2023-09 for annual periods beginning after December 15, 2024, and should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company adopted ASU 2023-09 in the calendar year beginning January 1, 2025, on a prospective basis.
The following table presents a reconciliation of the Company's income taxes for 2025:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| (In thousands) | |||||||||||
| U.S federal statutory tax rate | $ | 65,746 | 21.0 | % | |||||||
State and local income taxes, net of federal benefits (1) | 28,267 | 9.0 | % | ||||||||
| Tax credits: | |||||||||||
| Low income housing tax credits | (5,527) | (1.8) | % | ||||||||
| Changes in valuation allowances | (982) | (0.3) | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Tax exempt interest income | (16,643) | (5.3) | % | ||||||||
| Disallowed interest expense | 9,233 | 3.0 | % | ||||||||
| Disallowed FDIC premium | 3,499 | 1.1 | % | ||||||||
| Other | 586 | 0.2 | % | ||||||||
| Changes in unrecognized tax benefits | 28 | 0.0 | % | ||||||||
| Other adjustments | (105) | 0.0 | % | ||||||||
| Effective tax rate | $ | 84,102 | 26.9 | % | |||||||
______________________
(1) State taxes in California made up the majority (greater than 50%) of the tax effect in this category.
The following table presents income taxes paid (net of refunds received) for the year ended December 31, 2025:
Year Ended December 31, 2025 | |||||
| (In thousands) | |||||
| U.S federal taxes | $ | (7,760) | |||
| State and local taxes: | |||||
| California | 14,611 | ||||
| Other states | 694 | ||||
| Total income taxes paid | $ | 7,545 | |||
The following table presents a reconciliation of the recorded income tax expense to the amount of taxes computed by applying the applicable federal statutory income tax rates of 21% for 2024 and 2023 to earnings before income taxes:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| $ | 35,417 | $ | (464,381) | ||||||||
| State tax (benefit) expense, net of federal tax benefit | 12,657 | (156,669) | |||||||||
| Goodwill impairment | — | 286,811 | |||||||||
| Tax‑exempt interest benefit | (15,572) | (12,518) | |||||||||
| Increase in cash surrender value of life insurance | (1,246) | (1,455) | |||||||||
| Low income housing tax credits, net of amortization | (12,378) | (8,574) | |||||||||
| Nondeductible employee compensation | 1,683 | 3,947 | |||||||||
| Nondeductible acquisition‑related expense | — | 5,456 | |||||||||
| Nondeductible FDIC premiums | 9,377 | 18,973 | |||||||||
| Change in unrecognized tax benefits | 40 | 443 | |||||||||
| Valuation allowance change | (2,115) | (5,948) | |||||||||
| Disallowed interest | 11,043 | 12,318 | |||||||||
| Equity compensation shortfall (windfall) | 4,991 | 4,949 | |||||||||
| State rate and apportionment changes | (4,662) | 2,240 | |||||||||
| Other, net | 2,531 | 2,207 | |||||||||
| Recorded income tax (benefit) expense | $ | 41,766 | $ | (312,201) | |||||||
The Company recognized $54.3 million, $57.9 million, and $42.7 million of tax credits and other tax benefits associated with its investments in LIHTC partnerships for the years ended December 31, 2025, 2024, and 2023. The amount of amortization of such investments reported in income tax expense under the proportional amortization method of accounting was $45.0 million for 2025, $45.6 million for 2024, and $34.1 million for 2023.
As of December 31, 2025, for federal tax purposes, the Company had $151.7 million of LIHTC and solar tax credit carryforwards available to apply against future tax liability, expiring from 2042 to 2045. The Company had $12.7 million state LIHTC carryforwards, which can be carried forward indefinitely.
At December 31, 2025, we had $773.7 million of federal net operating loss carryforwards, almost all of which can be carried forward indefinitely, and approximately $1.33 billion of state net operating loss carryforwards available to be applied against future taxable income. A majority of the state net operating loss carryforwards will expire in varying amounts from 2026 through 2044. A portion of the state net operating loss carryforwards generated after December 31, 2017 can be carried forward indefinitely due to the state conformity to the federal net operating loss carryforward provisions as modified by the Tax Cuts and Jobs Act.
The following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred Tax Assets: | |||||||||||
| Book allowance for loan losses in excess of tax specific charge-offs | $ | 78,989 | $ | 78,096 | |||||||
| Fair value mark on acquired loans | 43,637 | 65,100 | |||||||||
| Interest on nonaccrual loans | 6,596 | 4,569 | |||||||||
| Deferred compensation | 4,490 | 4,902 | |||||||||
| Foreclosed assets valuation allowance | 86 | 335 | |||||||||
| Net operating losses | 261,014 | 292,843 | |||||||||
| Accrued liabilities | 88,077 | 102,232 | |||||||||
| Unrealized loss from FDIC‑assisted acquisitions | 503 | 413 | |||||||||
| Unrealized loss on securities available-for-sale | 54,454 | 79,977 | |||||||||
| Unrealized loss on securities held-to-maturity | 51,006 | 62,162 | |||||||||
| Tax mark-to-market on loans | 227 | 250 | |||||||||
| Goodwill | 64,512 | 73,863 | |||||||||
| Tax credits | 164,071 | 130,522 | |||||||||
| Lease liability | 33,421 | 35,447 | |||||||||
| FDIC indemnification asset | 1,779 | 7,028 | |||||||||
| Other | 2,891 | 3,159 | |||||||||
| Gross deferred tax assets | 855,753 | 940,898 | |||||||||
| Valuation allowance | (16,065) | (19,015) | |||||||||
| Deferred tax assets, net of valuation allowance | 839,688 | 921,883 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Core deposit and customer relationship intangibles | 20,367 | 27,292 | |||||||||
| Deferred loan fees and costs | 861 | 2,193 | |||||||||
| Unrealized gain on credit-linked notes | 1,706 | 1,452 | |||||||||
| Premises and equipment, principally due to differences in depreciation | 2,181 | 5,710 | |||||||||
| FHLB stock | 570 | 553 | |||||||||
| Subordinated debt | 13,118 | 14,789 | |||||||||
| Equity investments | 12,375 | 9,695 | |||||||||
| Operating leases | 103,633 | 110,415 | |||||||||
| ROU assets | 28,122 | 29,197 | |||||||||
| Gross deferred tax liabilities | 182,933 | 201,296 | |||||||||
| Total net deferred tax assets | $ | 656,755 | $ | 720,587 | |||||||
Based upon our taxpaying history and estimates of taxable income over the years in which the items giving rise to the DTAs are deductible, management believes it is more likely than not the Company will realize the benefits of these DTAs. The Company's net DTAs decreased at December 31, 2025, compared to December 31, 2024 due primarily to a decrease in unrealized loss on AFS securities.
The Company had net income taxes receivable of $8.4 million and $18.0 million at December 31, 2025 and December 31, 2024.
As of December 31, 2025 and 2024, the Company had a valuation allowance of $16.1 million and $19.0 million against DTAs. Periodic reviews of the carrying amount of DTAs are made to determine if a valuation allowance is necessary. A valuation allowance is required, based on available evidence, when it is more likely than not that all or a portion of a DTA will not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the DTA. All available evidence, both positive and negative, that may affect the realizability of the DTA is identified and considered in determining the appropriate amount of the valuation allowance. It is more likely than not that these DTAs subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.
The net decrease of $3.0 million in the total valuation allowance during the year ended December 31, 2025 was primarily related to the expiration and the expected realization of state net operating losses DTA that were previously reserved.
The following table summarizes the activity related to the Company's unrecognized tax benefits for the years indicated:
| Year Ended December 31, | |||||||||||
| Unrecognized Tax Benefits | 2025 | 2024 | |||||||||
| (In thousands) | |||||||||||
| Balance, beginning of year | $ | 645 | $ | 1,598 | |||||||
| Reductions for tax positions related to prior years | — | (953) | |||||||||
| Reductions related to settlements | (335) | — | |||||||||
| Balance, end of year | $ | 310 | $ | 645 | |||||||
| Unrecognized tax benefits that would affect the effective tax rate if recognized | $ | 310 | $ | 645 | |||||||
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
For the year ended December 31, 2025, we reduced our accrual for interest expense and penalties by $0.1 million. For the year ended December 31, 2024,we reduced our accrual for interest expense and penalties by $0.4 million and recognized tax expense of $0.1 million. We had $0.1 million and $0.2 million accrued for the payment of interest and penalties as of December 31, 2025 and 2024, respectively.
We file federal and state income tax returns with the Internal Revenue Service (“IRS”) and various state and local jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2021 through 2024. We are currently under examination by the IRS and certain state and local jurisdictions for various tax years ranging between 2015 and 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 18, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.