INCOME TAXES (Dollars In Thousands) The provision for income taxes is summarized below:
| | | | | | | | | | | | | | | | | |
| Current Tax Expense: | 2024 | | 2023 | | 2022 |
| Federal | $ | 7,187 | | | $ | 4,611 | | | $ | 12,263 | |
| State | 1,251 | | | 1,035 | | | 3,103 | |
| Total Current Tax Expense | 8,438 | | | 5,646 | | | 15,366 | |
| Deferred Tax (Benefit) Expense: | | | | | |
| Federal | (631) | | | 1,825 | | | (798) | |
| State | (158) | | | (26) | | | (454) | |
| Total Deferred Tax (Benefit) Expense | (789) | | | 1,799 | | | (1,252) | |
| | | | | |
| Total Provision for Income Taxes | $ | 7,649 | | | $ | 7,445 | | | $ | 14,114 | |
The provisions for income taxes differed from the amounts computed by applying the U.S. Federal Income Tax Rate of 21% to pre-tax income as a result of the following:
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| | 2024 | | | 2023 | | | | 2022 |
| | | | | | | | | | | |
| Statutory Federal Tax Rate | | | 21.0 | % | | | | 21.0 | % | | | | 21.0 | % |
| (Decrease) Increase Resulting From: | | | | | | | | | | | |
| Tax-Exempt Investment Income | | | (2.1) | | | | | (2.3) | | | | | (1.4) | |
| | | | | | | | | | | |
| State Taxes, Net of Federal Income Tax Benefit | | | 2.3 | | | | | 2.3 | | | | | 3.4 | |
| Bank Owned Life Insurance | | | (0.9) | | | | | (1.0) | | | | | (0.5) | |
| Other Items, Net | | | 0.2 | | | | | (0.2) | | | | | (0.1) | |
| Effective Tax Rate | | | 20.5 | % | | | | 19.8 | % | | | | 22.4 | % |
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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are presented below:
| | | | | | | | | | | |
| 2024 | | 2023 |
| Deferred Tax Assets: | | | |
| Net Unrealized Losses on Securities Available-for-Sale Included in Accumulated Other Comprehensive Income | $ | 9,427 | | | $ | 11,003 | |
| Allowance for Credit Losses | 9,068 | | | 8,475 | |
| Lease liabilities | 2,539 | | | 2,635 | |
| Pension and Deferred Compensation Plans | 3,460 | | | 3,708 | |
| Pension Liability Included in Accumulated Other Comprehensive Income | — | | | 1,210 | |
| Historic Tax Credit | — | | | 363 | |
| | | |
| Other | 773 | | | 781 | |
| | | |
| Total Gross Deferred Tax Assets | 25,267 | | | 28,175 | |
| Valuation Allowance for Deferred Tax Assets | — | | | — | |
| Total Gross Deferred Tax Assets, Net of Valuation Allowance | $ | 25,267 | | | $ | 28,175 | |
| Deferred Tax Liabilities: | | | |
| Pension Plans | $ | 5,397 | | | $ | 5,489 | |
| Depreciation | 4,692 | | | 5,094 | |
| ROU assets | 2,298 | | | 2,426 | |
| Deferred Income | 3,524 | | | 3,905 | |
| Prepaid Pension Included in Accumulated Other Comprehensive Income | 1,445 | | | — | |
| Net Unrealized Gains on Equity Securities | 241 | | | 207 | |
| | | |
| Goodwill | 3,373 | | | 3,379 | |
| Gain on Cash Flow Hedge Agreements Included in Accumulated Other Comprehensive Income | 1,620 | | | 590 | |
| Other | 64 | | | — | |
| Total Gross Deferred Tax Liabilities | $ | 22,654 | | | $ | 21,090 | |
| | | |
| Deferred Tax Asset, Net | $ | 2,613 | | | $ | 7,085 | |
Management believes that the realization of the recognized gross deferred tax assets at December 31, 2024 and 2023 is more likely than not, based on historic earnings and expectations as to future taxable income.
Interest and penalties are recorded as a component of the provision for income taxes, if any. There are no current examinations of our Federal income tax returns, nor have we been notified of any upcoming examinations. During 2024 the State of New York completed a desk audit of the Special Additional Mortgage Recording Tax Credit that Arrow claimed on the 2021 New York State income tax return. The audit resulted in an insignificant balance due. Our Tax years 2021 through 2024 are subject to Federal and New York State examination. Management annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of December 31, 2024.
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.