Income Taxes
The provision for income taxes consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | | 2024 | | 2023 | | 2022 |
| Current | | $ | 3,623 | | | $ | 876 | | | $ | (73) | |
| Deferred | | (1,357) | | | (4,353) | | | 4,632 | |
| | | | | | |
| Total | | $ | 2,266 | | | $ | (3,477) | | | $ | 4,559 | |
Income tax provision is reconciled to the statutory 21 % rate applied to pre-tax income.
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | | 2024 | | 2023 | | 2022 |
| Statutory rate times pre-tax income | | $ | 5,784 | | | $ | 1,037 | | | $ | 8,421 | |
| (Subtract) add the tax effect of: | | | | | | |
| Income from tax-exempt securities and loans | | (3,500) | | | (3,951) | | | (4,190) | |
| State income tax, net of federal tax effect | | 47 | | | (30) | | | 592 | |
| Bank-owned life insurance | | (262) | | | (215) | | | (201) | |
| | | | | | |
| Tax credits | | (110) | | | (168) | | | (143) | |
| Other differences | | 307 | | | (150) | | | 80 | |
| Total income taxes | | $ | 2,266 | | | $ | (3,477) | | | $ | 4,559 | |
The net deferred tax asset at December 31, 2024 and 2023 consists of the following:
| | | | | | | | | | | | | | | | |
| | December 31, | | |
| | | 2024 | | 2023 | | |
| Deferred tax assets (liabilities) | | | | | | |
| Allowance for credits losses | | $ | 10,824 | | | $ | 9,847 | | | |
| Net unrealized losses on available-for-sale securities and hedged items | | 9,753 | | | 8,776 | | | |
| | | | | | |
| Fair value adjustments | | (14,002) | | | (12,101) | | | |
| Depreciation | | (4,168) | | | (4,306) | | | |
| Deferred compensation and accrued payroll | | 1,486 | | | 1,228 | | | |
| Loan origination costs | | (1,533) | | | (1,379) | | | |
| Prepaid assets | | (916) | | | (806) | | | |
| Net operating loss | | 9,962 | | | 13,309 | | | |
| Tax credits | | 1,956 | | | 711 | | | |
| Other | | (309) | | | 335 | | | |
| Total deferred tax assets, net | | $ | 13,053 | | | $ | 15,614 | | | |
As of December 31, 2024 and 2023 the Company had federal net operating loss (“NOL”) carryforwards of approximately $54.0 million and $57.2 million, respectively, and no state NOL carryforwards for December 31, 2024 and $8.5 million for December 31, 2023. For federal income tax purposes, the NOL has no expiration period; however, for state income tax purposes, the NOL may have varying expiration periods. The Company expects to generate sufficient taxable income in the future to utilize the loss generated.
As of December 31, 2024 the Company had general business credits of $0.3 million that will begin expiring in 2044 and qualified zone academy bonds credits of $0.4 million that will begin expiring in 2025. The Company has state tax credits of $0.3 million that will begin expiring in 2029.
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.