INCOME TAXES
The income tax expense included in the accompanying consolidated statements of income consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2025 | | 2024 | | 2023 |
| Current income tax expense | | $ | 13,761 | | | $ | 19,909 | | | $ | 16,547 | |
| Deferred income tax expense (benefit) | | (351) | | | (1,026) | | | (2,110) | |
| Income tax expense | | $ | 13,410 | | | $ | 18,883 | | | $ | 14,437 | |
The components of the net deferred tax asset/liability as of December 31, 2025 and 2024 are summarized below (in thousands):
| | | | | | | | | | | | | | |
| | | Assets | | Liabilities |
| Allowance for loan losses | | $ | 9,471 | | | $ |
| Retirement and other benefit plans | | | | 2,198 | |
| Premises and equipment | | | | 8,359 | |
| Operating lease liabilities | | 3,010 | | | |
| Operating lease ROU assets | | | | 2,604 | |
| Core deposit intangible | | | | 49 | |
| Unrealized losses on securities AFS | | 20,803 | | | |
| Effective hedging derivatives | | 309 | | | |
| Fair value adjustment on loans | | 327 | | | |
| | | | |
| Unfunded status of defined benefit plan | | 4,658 | | | |
| State business tax credit | | 60 | | | |
| Stock-based compensation | | 1,189 | | | |
| Other | | 442 | | | |
| Gross deferred tax assets/liabilities | | 40,269 | | | 13,210 | |
| Net deferred tax asset at December 31, 2025 | | $ | 27,059 | | | |
| | | | |
| Allowance for loan losses | | $ | 9,426 | | | $ |
| Retirement and other benefit plans | | | | 2,674 | |
| Premises and equipment | | | | 8,196 | |
| Operating lease liabilities | | 3,313 | | | |
| Operating lease ROU assets | | | | 2,911 | |
| Core deposit intangible | | | | 132 | |
| Unrealized losses on securities AFS | | 33,466 | | | |
| Effective hedging derivatives | | | | 4,926 | |
| Fair value adjustment on loans | | 385 | | | |
| | | | |
| Unfunded status of defined benefit plan | | 5,051 | | | |
| State business tax credit | | 121 | | | |
| Stock-based compensation | | 1,404 | | | |
| Other | | 165 | | | |
| Gross deferred tax assets/liabilities | | 53,331 | | | 18,839 | |
| Net deferred tax asset at December 31, 2024 | | $ | 34,492 | | | |
A reconciliation of tax at statutory rates and total tax expense is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2025 | | 2024 | | 2023 |
| | | Amount | | Percent of Pre-Tax Income | | Amount | | Percent of Pre-Tax Income | | Amount | | Percent of Pre-Tax Income |
| Statutory tax expense | | $ | 17,352 | | | 21.0 | % | | $ | 22,549 | | | 21.0 | % | | $ | 21,237 | | | 21.0 | % |
State business tax (1) | | 424 | | | 0.5 | % | | 883 | | | 0.8 | % | | 353 | | | 0.3 | % |
| Nontaxable or Nondeductible Items: | | | | | | | | | | | | |
| Tax exempt interest | | (3,954) | | | (4.8) | % | | (3,797) | | | (3.5) | % | | (6,107) | | | (6.0) | % |
| BOLI | | (762) | | | (0.9) | % | | (893) | | | (0.8) | % | | (1,222) | | | (1.2) | % |
| | | | | | | | | | | | |
| Other, net | | 350 | | | 0.4 | % | | 141 | | | 0.1 | % | | 176 | | | 0.2 | % |
| Income tax expense | | $ | 13,410 | | | 16.2 | % | | $ | 18,883 | | | 17.6 | % | | $ | 14,437 | | | 14.3 | % |
(1) State taxes in Texas made up the majority (greater than 50%) of the tax effect in this category.
We file income tax returns in the U.S. federal jurisdiction and in certain states. Federal taxes paid, net of refunds, totaled $12.0 million for the year December 31, 2025, and state income taxes paid, net of refunds, totaled $1.0 million for the year ended December 31, 2025, of which $936,000 was for the state of Texas. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2022 or Texas state tax examinations by tax authorities for years before 2021. No valuation allowance was recorded at December 31, 2025 or 2024 as management believes it is more likely than not that all of the deferred tax asset items will be realized in future years. Unrecognized tax benefits were not material at December 31, 2025 or 2024.
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.