INCOME TAXES
Allocation of income tax expense between current and deferred portions is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in thousands) | 2025 | | 2024 | | 2023 |
| | | | | |
| Current | | | | | |
| Federal | $ | 18,731 | | | $ | 17,090 | | | $ | 12,538 | |
| State | 8,438 | | | 7,517 | | | 6,384 | |
| Total current | 27,169 | | | 24,607 | | | 18,922 | |
| | | | | |
| Deferred | | | | | |
| Federal | 268 | | | 307 | | | 2,811 | |
| State | 61 | | | 689 | | | 1,006 | |
| Total deferred | 329 | | | 996 | | | 3,817 | |
| Income tax expense | $ | 27,498 | | | $ | 25,603 | | | $ | 22,739 | |
The Company had no income from foreign sources and therefore had no foreign income tax expense. Income tax expense differs from the statutory federal rate due to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| (dollars in thousands) | Amount | | Percentage | | Amount | | Percentage | | Amount | | Percentage |
| | | | | | | | | | | |
| Federal income tax, at US statutory rate | $ | 21,946 | | | 21.0 | % | | $ | 20,450 | | | 21.0 | % | | $ | 18,602 | | | 21.0 | % |
| Increase (decrease) resulting from: | | | | | | | | | | | |
| State taxes, net of federal benefit | 6,711 | | | 6.4 | | | 6,174 | | | 6.3 | | | 5,838 | | | 6.6 | |
| Nontaxable or nondeductible items: | | | | | | | | | | | |
| Federally tax exempt interest income | (1,417) | | | (1.3) | | | (1,391) | | | (1.4) | | | (1,767) | | | (2.0) | |
| Other | 255 | | | 0.2 | | | 89 | | | 0.1 | | | 266 | | | 0.3 | |
| Tax credits | (186) | | | (0.2) | | | (137) | | | (0.1) | | | (190) | | | (0.2) | |
| Other | 189 | | | 0.2 | | | 418 | | | 0.4 | | | (10) | | | — | |
| Income tax expense | $ | 27,498 | | | 26.3 | % | | $ | 25,603 | | | 26.3 | % | | $ | 22,739 | | | 25.7 | % |
The effective tax rate differs from the federal statutory rate primarily due to state taxes, net of the federal tax benefit, and federally tax exempt interest income. Illinois state taxes made up the majority of the state tax effect. Tax credits include projected tax losses from, as well as amortization of, tax credit investments.
The components of the deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| (dollars in thousands) | December 31, 2025 | | December 31, 2024 |
| | | |
| Deferred tax assets | | | |
| Allowance for credit losses | $ | 12,709 | | | $ | 12,523 | |
| Compensation related | 3,146 | | | 3,119 | |
| Deferred loan fees | 965 | | | 692 | |
| Nonaccrual interest | 632 | | | 673 | |
| | | |
| Goodwill | — | | | 3 | |
| Net operating loss carryforward | 62 | | | 99 | |
| Net unrealized losses on debt securities | 10,282 | | | 19,424 | |
| Other purchase accounting adjustments | 2,952 | | | 4,012 | |
| Other | 648 | | | 699 | |
| Total deferred tax assets | 31,396 | | | 41,244 | |
| | | |
| Deferred tax liabilities | | | |
| Fixed asset depreciation | 3,569 | | | 3,172 | |
| Mortgage servicing rights | 4,699 | | | 5,224 | |
| | | |
| Intangible assets | 4,087 | | | 4,899 | |
| Prepaid assets | 1,087 | | | 982 | |
| Goodwill | 59 | | | — | |
| Other | 655 | | | 532 | |
| Total deferred tax liabilities | 14,156 | | | 14,809 | |
| Net deferred tax asset | $ | 17,240 | | | $ | 26,435 | |
As of December 31, 2025, the Company had an Illinois net operating loss carryforward of $0.8 million which is available to offset future Illinois taxable income. The Illinois net operating loss carryforward is subject to a $500 thousand limitation through 2027 and will begin to expire in 2047. Management believes that it is more likely than not that the deferred tax assets included in the balance sheet will be realized, and that a valuation allowance was not required for deferred tax assets as of December 31, 2025 and 2024.
The Company files consolidated federal and state income tax returns. The Company is generally no longer subject to federal or state income tax examinations for years prior to 2022.
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.