CATHAY GENERAL BANCORP Income Taxes Disclosure

11.         Income Taxes

 

For the years ended December 31, 2024, 2023, and 2022, the current and deferred amounts of the income tax expense are summarized as follows: 

 

		Year Ended December 31,
		2024				2023				2022
		(In thousands)
Current:
Federal		$	15,762			$	5,428			$	57,029
State			36,557				48,812				56,953
Total Current		$	52,319			$	54,240			$	113,982
Deferred:
Federal		$	(18,923	)		$	(1,676	)		$	(1,776	)
State			(1,833	)			(3,106	)			(312	)
Total Deferred		$	(20,756	)		$	(4,782	)		$	(2,088	)
Total income tax expense		$	31,563			$	49,458			$	111,894

 

Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities give rise to deferred taxes. Net deferred tax assets as of December 31, 2024, and 2023 are included in other assets in the accompanying Consolidated Balance Sheets and are as follows:

 

		As of December 31,
		2024				2023
		(In thousands)
Deferred Tax Assets
Loan loss allowance		$	52,484			$	50,126
Accrual for bonuses			5,770				4,636
Non-accrual interest			3,642				2,164
Write-down on equity securities and venture capital investments			1,958				2,018
Depreciation and amortization			—				765
State tax			2,910				5,693
Unrealized loss on securities available-for-sale, net			32,333				31,728
Tax credits carried forward			29,307				9,136
Net operating loss carried forward			3,249				3,787
Other, net			6,176				7,632
Gross deferred tax assets		$	137,829			$	117,685
Deferred Tax Liabilities
Deferred loan costs		$	(9,569	)		$	(9,687	)
Unrealized gain on interest rate swaps			(502	)			(838	)
Unrealized gain on equity securities			(2,460	)			(4,863	)
Dividends on Federal Home Loan Bank common stock			(976	)			(977	)
Other, net			(4,712	)			(3,916	)
Gross deferred tax liabilities		$	(18,219	)		$	(20,281	)
Net deferred tax assets		$	119,610			$	97,404

 

Amounts for the current year are based upon estimates and assumptions and could vary from amounts shown on the tax returns as filed.

 

At December 31, 2024, the Company has California NOL carryovers of $33.5 million for which a California deferred tax asset of $3.2 million has been recorded reflecting the expected benefit of these California NOL carryovers.  The annual IRC Section 382 limitation is $7.3 million per year. If not utilized, a portion of the Company’s state NOL’s will begin to expire in 2030. At December 31, 2024, the Company’s federal tax credit carryovers total $28.7 million .  If not utilized, the federal tax credit carryovers will begin to expire in 2028.  The AMT tax credit carryovers can be carried forward indefinitely.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize all benefits related to these deductible temporary differences.

 

The Company had current income tax receivables of $37.0 million as of December 31, 2024, and $33.7 million as of December 31, 2023. The Company had $20.2 million of tax credits generated in 2024 that will be carried forward to 2025. Current income tax receivable is included in other assets in the accompanying Consolidated Balance Sheets. 

 

The Company’s tax returns are open for audits by the Internal Revenue Service back to 2021 and by the California Franchise Tax Board back to 2020.  The Company is currently under audit by the California Franchise Tax Board for 2020.  It is reasonably possible that unrecognized tax benefits could change significantly over the next twelve months. The Company does not expect that any such changes would have a material impact on its annual effective tax rate.

 

Income tax expense results in effective tax rates that differ from the statutory federal income tax rate for the years indicated as follows:

 

		Year Ended December 31,
		2024								2023								2022
		(In thousands)
Tax provision at Federal statutory rate		$	66,684				21.0	%		$	84,752				21.0	%		$	99,233				21.0	%
State income taxes, net of Federal income tax benefit			27,432				8.6				36,107				9.0				44,837				9.5
Excess deduction for stock option and RSUs			(517	)			(0.2	)			(586	)			(0.1	)			(140	)			—
Low income housing and other tax credits			(63,965	)			(20.1	)			(73,715	)			(18.3	)			(34,231	)			(7.2	)
Other, net			1,929				0.6				2,900				0.7				2,195				0.4
Total income tax expense		$	31,563				9.9	%		$	49,458				12.3	%		$	111,894				23.7	%