Note 9 – Income Taxes
The provisions for income taxes for the years ended December 31, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2024 | | 2023 | | 2022 |
| Current: | | | | | | |
| Federal | | $ | 3,438 | | | $ | 6,707 | | | $ | 6,607 | |
| State | | 465 | | | 1,315 | | | 1,152 | |
| | | $ | 3,903 | | | $ | 8,022 | | | $ | 7,759 | |
| Deferred: | | | | | | |
| Federal | | $ | 1,873 | | | $ | 8 | | | $ | (3,056) | |
| State | | 323 | | | 89 | | | (575) | |
| | 2,196 | | | 97 | | | (3,631) | |
| Income taxes | | $ | 6,099 | | | $ | 8,119 | | | $ | 4,128 | |
Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | 2022 |
| (Dollars in thousands) | | Amount | | % | | Amount | | % | | Amount | | % |
| Income tax at federal statutory rate | | $ | 5,532 | | | 21.0 | % | | $ | 8,217 | | | 21.0 | % | | $ | 3,889 | | | 21.0 | % |
| Tax effect of: | | | | | | | | | | | | |
| State income taxes, net of federal income taxes | | 623 | | | 2.4 | % | | 1,109 | | | 2.8 | % | | 456 | | | 2.5 | % |
| Tax exempt earnings | | (808) | | | (3.1) | % | | (941) | | | (2.4) | % | | (1,596) | | | (8.6) | % |
| Other | | 752 | | | 2.9 | % | | (266) | | | (0.6) | % | | 1,379 | | | 7.4 | % |
| | | $ | 6,099 | | | 23.2 | % | | $ | 8,119 | | | 20.8 | % | | $ | 4,128 | | | 22.3 | % |
Deferred income tax assets and liabilities were comprised of the following at December 31:
| | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2024 | | 2023 |
| Gross deferred tax assets: | | | | |
| Allowance for credit losses | | $ | 5,118 | | | $ | 5,589 | |
| Minimum pension liability | | 734 | | | 955 | |
| Research and development | | 1,126 | | | 2,035 | |
| Stock-based compensation | | 903 | | | 976 | |
| Supplemental executive retirement plan | | 401 | | | 327 | |
| Unrealized loss on securities available-for-sale | | 7,958 | | | 7,892 | |
| Lease liabilities | | 6,772 | | | 3,402 | |
| Depreciation | | 329 | | | — | |
| Other | | 660 | | | 828 | |
| Total gross deferred tax assets | | 24,001 | | | 22,004 | |
| | | | |
| Gross deferred tax liabilities: | | | | |
| Pension | | (1,086) | | | (1,091) | |
| | | | |
| Holding gain on equity securities | | (4,247) | | | (3,976) | |
| Equity method investment | | (2,061) | | | (2,136) | |
| Goodwill | | (88) | | | (107) | |
| Right-of-use assets | | (6,479) | | | (3,163) | |
| Depreciation | | — | | | (1,197) | |
| Other | | (2,697) | | | (597) | |
| Total gross deferred tax liabilities | | (16,658) | | | (12,267) | |
| | | | |
| Net deferred tax assets | | $ | 7,343 | | | $ | 9,737 | |
Net deferred income tax assets are included in accrued interest and other assets. We have no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of our income tax returns. With limited exceptions, the we are no longer subject to examination by the Internal Revenue Service for years prior to 2021.
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.