Income Taxes
The provision for income taxes consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | | 2025 | | 2024 | | 2023 |
| Current | | $ | 2,395 | | | $ | 3,623 | | | $ | 876 | |
| Deferred | | (18,096) | | | (1,357) | | | (4,353) | |
| | | | | | |
| Total | | $ | (15,701) | | | $ | 2,266 | | | $ | (3,477) | |
In December 2023, the FASB issued ASU 2023-09, which expands income tax disclosure requirements to include additional information related to the rate reconciliation of our effective tax rates to statutory rates. The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025.
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| | December 31, 2025 | | |
| | | Amount | | | Percent | | |
| U.S. federal statutory tax rate | | $ | (10,682) | | | | (21.0 | %) | | |
State and local income tax, net of federal tax effect 1 | | (1,189) | | | | (2.3 | %) | | |
| Effect of: | | | | | | | |
| Tax credits | | (206) | | | | (0.4 | %) | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Nontaxable or nondeductible items: | | | | | | | |
| Income from tax-exempt securities and loans | | (3,497) | | | | (6.9 | %) | | |
| Other | | (127) | | | | (0.3 | %) | | |
| Total | | $ | (15,701) | | | | (30.9 | %) | | |
1 The states that contribute to the majority (greater than 50%) of the tax effect in the category include Indiana and Florida for 2025.
The reconciliation of taxes at the federal statutory rate to our provision for income taxes for the years ended December 31, 2024 and 2023, in accordance with the guidance prior to the adoption of ASU 2023-09, was as follows:
| | | | | | | | | | | | | | | | | |
| | | | | December 31, |
| | | | | | 2024 | | 2023 |
| Statutory rate times pre-tax income | | | | | $ | 5,784 | | | $ | 1,037 | |
| (Subtract) add the tax effect of: | | | | | | | |
| Income from tax-exempt securities and loans | | | | | (3,500) | | | (3,951) | |
| State income tax, net of federal tax effect | | | | | 47 | | | (30) | |
| Bank-owned life insurance | | | | | (262) | | | (215) | |
| | | | | | | |
| Tax credits | | | | | (110) | | | (168) | |
| Other differences | | | | | 307 | | | (150) | |
| Total income taxes | | | | | $ | 2,266 | | | $ | (3,477) | |
The net deferred tax asset at December 31, 2025 and 2024 consists of the following:
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| | December 31, | | |
| | | 2025 | | 2024 | | |
| Deferred tax assets (liabilities) | | | | | | |
| Allowance for credits losses | | $ | 13,181 | | | $ | 10,824 | | | |
| Net unrealized losses on available-for-sale securities and hedged items | | 6,013 | | | 9,753 | | | |
| | | | | | |
| Fair value adjustments | | (11,575) | | | (14,002) | | | |
| Depreciation | | (3,526) | | | (4,168) | | | |
| Deferred compensation and accrued payroll | | 939 | | | 1,486 | | | |
| Loan origination costs | | (1,550) | | | (1,533) | | | |
| Prepaid assets | | (1,365) | | | (916) | | | |
| Net operating loss | | 22,453 | | | 9,962 | | | |
| Tax credits | | 2,459 | | | 1,956 | | | |
| Other | | 482 | | | (309) | | | |
| Total deferred tax assets, net | | $ | 27,511 | | | $ | 13,053 | | | |
As of December 31, 2025 and 2024 the Company had federal net operating loss (“NOL”) carryforwards of approximately $102.0 million and $54.0 million, respectively, and state NOL carryforwards of $31.9 million and $0, respectively. 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, 2025 the Company had general business credits of $2.0 million that will begin expiring in 2043 and qualified zone academy bonds credits of $0.2 million that will begin expiring in 2026. The Company has state tax credits of $0.3 million that will begin expiring in 2027.
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.