Deferred TaxesThe tax effects of significant items comprising the Company’s net deferred tax assets (liabilities) are as follows:
| | | | | | | | | | | | | | |
| | | December 31, |
| (In thousands) | | 2024 | | 2023 |
| Deferred tax assets: | | | | |
| Credit losses not currently deductible | | $ | 5,127 | | | $ | 4,985 | |
| Deferred compensation | | 1,692 | | | 1,757 | |
| Depreciation | | 278 | | | 92 | |
| Accrued reserves | | 248 | | | — | |
| Write-down on other real estate owned | | 291 | | | 291 | |
| Unrealized gain on retirement obligation | | 63 | | | 56 | |
| Deferred loss ASC 825 – fair value option | | 354 | | | 159 | |
| Unrealized loss on available for sale securities | | 6,613 | | | 6,835 | |
| Interest on nonaccrual loans | | 1,733 | | | 1,513 | |
| Lease liability | | 1,006 | | | 458 | |
| Other | | 751 | | | 848 | |
| Total deferred tax assets | | 18,156 | | | 16,994 | |
| Deferred tax liabilities: | | | | |
| State tax | | (636) | | | (596) | |
| FHLB dividend | | (46) | | | (46) | |
| Loss on limited partnership investments | | (841) | | | (650) | |
| Fair value adjustments for purchase accounting | | (93) | | | (93) | |
| Unrealized loss on TRUPs | | (471) | | | (579) | |
| Deferred loan costs | | (567) | | | (414) | |
| Prepaid expenses | | (106) | | | (135) | |
| Right-of-use asset | | (977) | | | (426) | |
| Total deferred tax liabilities | | (3,737) | | | (2,939) | |
| Net deferred tax assets | | $ | 14,419 | | | $ | 14,055 | |
The Company periodically evaluates its deferred tax assets to determine whether a valuation allowance is required based upon a determination that some or all of the deferred assets may not be ultimately realized. The Company did not record a valuation allowance at December 31, 2024, or December 31, 2023.
Income tax expense for the years ended December 31, consist of the following:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Federal | | State | | Total |
| 2024 | | | | | | |
| Current | | $ | 3,769 | | | $ | 2,240 | | | $ | 6,009 | |
| Deferred | | (295) | | | (177) | | | (472) | |
| | $ | 3,474 | | | $ | 2,063 | | | $ | 5,537 | |
| 2023 | | | | | | |
| Current | | $ | 5,103 | | | $ | 2,874 | | | $ | 7,977 | |
| Deferred | | (238) | | | (59) | | | (297) | |
| | | $ | 4,865 | | | $ | 2,815 | | | $ | 7,680 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| | | 2024 | | 2023 | | |
| Statutory federal income tax rate | | 21.0 | % | | 21.0 | % | | |
| State franchise tax, net of federal income tax benefit | | 8.0 | | | 8.1 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other | | (1.7) | | | (1.1) | | | |
| Effective income tax rate | | 27.3 | % | | 28.0 | % | | |
The Company periodically reviews its tax positions under the accounting standards related to uncertainty in income taxes, which defines the criteria that an individual tax position would have to meet for some or all of the income tax benefit to be recognized in a taxable entity’s financial statements. Under the guidelines, an entity should recognize the financial statement benefit of a tax position if it determines that it is more likely than not that the position will be sustained on examination. The term “more likely than not” means a likelihood of more than 50 percent. In assessing whether the more-likely-than-not criterion is met, the entity should assume that the tax position will be reviewed by the applicable taxing authority and all available information is known to the taxing authority. As of December 31, 2024, and 2023, the Company has no uncertain tax positions.
The Company and its subsidiary file income tax returns in the U.S federal jurisdiction and California. There are no filings in foreign jurisdictions. The Company is no longer subject to income tax examinations by taxing authorities for years before 2021 and 2020 for Federal and California jurisdictions, respectively.
The Company’s policy is to recognize any interest or penalties related to uncertain tax positions in income tax expense. Interest and penalties recognized during the periods ended December 31, 2024 and December 31, 2023 were insignificant.
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.