Income Taxes

The following table presents the components of income taxes expense (benefit) for the years ended December 31, 2024, 2023 and 2022:



	Year Ended December 31,
($ in thousands)	2024		2023		2022
Current income tax expense:
Federal	$	6,610	$	6,238	$	7,959
State	3,000		3,332		4,374
Total current income tax expense	9,610		9,570		12,333
Deferred income tax expense (benefit):
Federal	(982)		217		783
State	(618)		(214)		298
Total deferred income tax expense (benefit)	(1,600)		3		1,081
Total income tax expense	$	8,010	$	9,573	$	13,414

The following table presents a reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for the periods indicated:



	Year Ended December 31,
	2024		2023		2022
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in tax rate resulting from:
Meals and entertainment	0.2		0.2		—
State income taxes, net of federal tax benefit	7.8		8.0		8.4
Stock option expense and related excess tax benefits	(0.1)		0.1		—
Company owned life insurance	(0.5)		(0.4)		(0.2)
Other, net	(0.8)		(0.3)		(0.5)
Effective tax rate	27.6	%	28.6	%	28.7	%

The significant components of deferred tax assets and liabilities as of December 31, 2024 and 2023 are reflected in the following table:



	December 31,
($ in thousands)	2024		2023
Deferred tax assets:
Organizational costs	$	15	$	18
Allowance for credit losses	7,331		6,502
Loans held for sale	108		—
Stock-based compensation	574		509
Accrued compensation	322		302
Lease liability	2,323		2,762
State taxes	645		675
Net unrealized loss on AFS debt securities	6,394		6,485
Net unrealized loss on swap	75		—
Nonaccrual loan interest income	224		224
Other	242		279
Total deferred tax assets	18,253		17,756
Deferred tax liabilities:
Loan origination costs	(388)		(1,110)
Depreciation	(498)		(553)
Right of use asset	(2,192)		(2,512)

Other	(282)		(272)
Total deferred tax liabilities	(3,360)		(4,447)
Net deferred tax asset	$	14,893	$	13,309

A valuation allowance for deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management reevaluated all positive and negative evidence that existed and concluded all deferred tax assets are realizable. Therefore, no valuation allowance was necessary as of December 31, 2024 and 2023.

The Company is subject to U.S. Federal income tax as well as various state taxing jurisdictions. The Company is no longer subject to examination by Federal taxing authorities for tax years prior to 2021 and for state taxing authorities for tax years prior to 2020.

There were no significant unrealized tax benefits recorded as of December 31, 2024 and 2023 and the Company does not expect any significant increase in unrealized tax benefits in the next twelve months.

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.

OP Bancorp Income Taxes Disclosure

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