Income Tax Expense
The components of income tax expense for the years ended December 31, 2024, 2023, and 2022, were as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in thousands) | 2024 | | 2023 | | 2022 |
| Current tax expense | $ | 7,382 | | | $ | 8,395 | | | $ | 7,752 | |
| Deferred tax expense (benefit) | 764 | | | (330) | | | 313 | |
| Income tax expense | $ | 8,146 | | | $ | 8,065 | | | $ | 8,065 | |
The source and tax effect of items reconciling income tax expense to the amount computed by applying the federal income tax rates in effect to income before income tax expense for the years ended December 31, 2024, 2023, and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 | | 2022 |
| (dollars in thousands) | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Income before income tax expense | $ | 42,381 | | | 100.0 | % | | $ | 42,944 | | | 100.0 | % | | $ | 44,981 | | | 100.0 | % |
| | | | | | | | | | | |
| U.S. federal income tax expense | 8,900 | | | 21.0 | % | | 9,018 | | | 21.0 | % | | 9,446 | | | 21.0 | % |
| Nontaxable income | (897) | | | (2.1 | %) | | (1,073) | | | (2.5 | %) | | (1,338) | | | (3.0 | %) |
| Nondeductible expenses | 81 | | | 0.2 | % | | 67 | | | 0.2 | % | | 50 | | | 0.1 | % |
| | | | | | | | | | | |
| Other | 62 | | | 0.1 | % | | 53 | | | 0.1 | % | | (93) | | | (0.2 | %) |
| Income tax expense | $ | 8,146 | | | 19.2 | % | | $ | 8,065 | | | 18.8 | % | | $ | 8,065 | | | 17.9 | % |
The Company records deferred income taxes on the tax effect of changes in temporary differences. Deferred tax assets (liabilities) are subject to a valuation allowance unless their realization is more likely than not. The deferred tax assets (liabilities) were comprised of the following as of December 31, 2024 and 2023:
| | | | | | | | | | | |
| December 31, |
| (in thousands) | 2024 | | 2023 |
| Depreciation | $ | (3,377) | | | $ | (2,542) | |
| | | |
| FHLB of Dallas stock dividends | (39) | | | (20) | |
| Equity security valuation | (6) | | | — | |
| Other | (338) | | | — | |
| Gross deferred tax liability | (3,760) | | | (2,562) | |
| Allowance for credit losses | 4,683 | | | 4,541 | |
| Allowance for operational losses | 55 | | | 54 | |
| Health insurance self fund | 340 | | | 221 | |
| Deferred compensation | 831 | | | 708 | |
| Unrealized loss on securities | 16,015 | | | 16,081 | |
| Equity security valuation | — | | | 35 | |
| Advance payments from vendors | 302 | | | 197 | |
| Accrued bonus | 512 | | | 502 | |
| Other | — | | | 72 | |
| Gross deferred tax asset | 22,738 | | | 22,411 | |
| Net deferred tax asset (liability) | $ | 18,978 | | | $ | 19,849 | |
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.