EAST WEST BANCORP INC
For the period ended Dec 31, 2023. Filed Feb 29, 2024.
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FY2023 · Filed Feb 29, 2024
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11 — Income Taxes
Note 11 —Income Taxes
The following table presents the components of income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021:
| Year Ended December 31, | |||
|---|---|---|---|
| ($ in thousands) | 2023 | 2022 | 2021 |
| Current income tax expense (benefit): | |||
| Federal | $172,428 | $163,797 | $84,249 |
| State | 173,080 | 160,629 | 95,939 |
| Foreign | 2,240 | 3,133 | (1,554) |
| Total current income tax expense | 347,748 | 327,559 | 178,634 |
| Deferred income tax (benefit) expense: | |||
| Federal | (24,319) | (23,484) | 1,528 |
| State | (23,415) | (21,835) | 3,259 |
| Foreign | (1,405) | 1,331 | (25) |
| Total deferred income tax (benefit) expense | (49,139) | (43,988) | 4,762 |
| Income tax expense | $298,609 | $283,571 | $183,396 |
The following table presents the reconciliation of the federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2023, 2022 and 2021:
| Year Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| Statutory U.S. federal tax rate | 21.0% | 21.0% | 21.0% |
| U.S. state income taxes, net of U.S. federal income tax effect | 8.1 | 7.8 | 7.4 |
| Tax credits and benefits, net of related expenses | (9.9) | (8.9) | (11.3) |
| Other, net | 1.3 | 0.2 | 0.3 |
| Effective tax rate | 20.5% | 20.1% | 17.4% |
The following table summarizes the tax effects of temporary differences that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2023 and 2022:
| December 31, | ||
|---|---|---|
| ($ in thousands) | 2023 | 2022 |
| Deferred tax assets: | ||
| Allowance for credit losses and nonperforming assets valuation allowance | $217,731 | $191,187 |
| Investments in qualified affordable housing partnerships, tax credit and other investments, net | 28,216 | 21,011 |
| Stock compensation and other accrued compensation | 33,169 | 25,857 |
| Interest income on nonaccrual loans | 7,034 | 5,185 |
| State taxes | 9,885 | 13,259 |
| Net unrealized losses on debt securities and derivatives | 242,303 | 309,837 |
| Premises and equipment | 1,782 | 3,827 |
| Lease liabilities | 32,636 | 34,859 |
| FDIC special assessment charge | 22,212 | — |
| Other | 9,019 | 6,169 |
| Total deferred tax assets | $603,987 | $611,191 |
| Deferred tax liabilities: | ||
| Equipment lease financing | $15,564 | $27,237 |
| Investments in qualified affordable housing partnerships, tax credit and other investments, net | 23,103 | 7,709 |
| FHLB stock dividends | 1,947 | 1,926 |
| Mortgage servicing assets | 2,102 | 1,963 |
| Acquired debts | 1,398 | 1,477 |
| Prepaid expenses | 2,981 | 2,478 |
| Operating lease right-of-use assets | 30,272 | 32,606 |
| Other | 7,871 | 6,270 |
| Total deferred tax liabilities | $85,238 | $81,666 |
| Net deferred tax assets | $518,749 | $529,525 |
As of both December 31, 2023 and 2022, the Company concluded thatno valuation allowance was necessary to reduce the deferred tax assets since estimated future taxable income will be sufficient to utilize these assets. For further information on the Company’s valuation policy on deferred taxes, see Note 1 —Summary of Significant Accounting Policies—Significant Accounting Policies—Income Taxes to the Consolidated Financial Statements in this Form 10-K.
The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021:
| Year Ended December 31, | ||||
|---|---|---|---|---|
| ($ in thousands) · 2023 · 2022 · 2021 | ||||
| Beginning balance | $477 | $5,045 | $5,045 | |
| Additions for tax positions related to prior years | 459 | — | — | |
| Additions for tax positions related to current year | 257 | — | — | |
| Settlements with taxing authorities | — | (4,568) | (1) | — |
| Ending balance | $1,193 | $477 | $5,045 | |
(1)In 2022, the Company settled an issue regarding previously claimed tax credits related to DC Solar and affiliates.
The Company recognizes interest and penalties, as applicable, related to the underpayment of income taxes as a component of Income tax expenseon the Consolidated Statement of Income. The amount of net interest and penalties related to unrecognized tax benefits was immaterial for all periods presented.
The Company files federal income tax returns, as well as returns in various state and foreign jurisdictions. We are routinely examined by tax authorities in these various jurisdictions. The Company is subject to federal income tax examination for the tax years 2020 and forward. The Company is also subject to tax examination in various state and local jurisdictions for the tax years 2017 and forward. The Company does not believe that the outcome of unresolved issues or claims in any of the tax jurisdictions is likely to be material on the Company’s Consolidated Financial Statements. The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2023.
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