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Note 14 - Federal and State Income Taxes

12 Months Ended

Dec. 31, 2024

Federal and State Income Taxes

Federal and State Income Taxes

Note 14. Federal and State Income Taxes

Federal and state income tax expense was comprised of the following components for the years ended December 31, 2024, 2023, and 2022:

​

​	​	​	​	​	​	​	​	​	​
​		2024			2023			2022
​	​	(dollars in thousands)
​	​	​	​	​	​	​	​	​	​
Current	​	$	15,919	​	$	14,008	​	$	19,165
Deferred	​		(7,192)	​		(946)	​		(4,682)
​	​	$	8,727	​	$	13,062	​	$	14,483
​	​	​	​	​	​	​	​	​	​

​

A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income was as follows for the years ended December 31, 2024, 2023, and 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended December 31,

​

​

​

2024

​

2023

​

2022

​

​

​

​

​

​

% of

​

​

​

​

% of

​

​

​

​

% of

​

​

​

​

​

​

Pretax

​

​

​

​

Pretax

​

​

​

​

Pretax

​

Amount

Income

Amount

Income

Amount

Income

​

​

​

(dollars in thousands)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Computed "expected" tax expense

​

​

$

25,741

21.0

%

$

26,590

21.0

%

$

23,845

21.0

%

Tax exempt income, net

​

​

(16,410)

(13.4)

​

(13,823)

(10.9)

​

(10,689)

(9.4)

​

Bank-owned life insurance

​

​

(1,142)

(0.9)

​

(875)

(0.7)

​

(432)

(0.4)

​

State income taxes, net of federal benefit, current year

​

​

3,517

2.9

​

4,433

3.5

​

4,482

3.9

​

Change in unrecognized tax benefits

​

​

1,169

1.0

​

396

0.3

​

498

0.4

​

Provision adjustment from accounting method change

​

​

​

(142)

​

(0.1)

​

​

(247)

​

(0.2)

​

​

(1,181)

​

(1.0)

​

Tax credits

​

​

(2,717)

(2.3)

​

(2,865)

(2.3)

​

(1,362)

(1.2)

​

Acquisition costs

​

​

—

—

​

—

—

​

276

0.2

​

Excess tax benefit on stock options exercised and restricted stock awards vested

​

​

(929)

(0.8)

​

(464)

(0.3)

​

(503)

(0.4)

​

Other

​

​

(360)

(0.3)

​

(83)

(0.1)

​

(451)

(0.4)

​

Federal and state income tax expense

​

​

$

8,727

7.1

%

$

13,062

10.3

%

$

14,483

12.7

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Changes in the unrecognized tax benefits included in other liabilities were as follows for the years ended December 31, 2024 and 2023:

​

​	​	​	​	​	​	​
​		2024			2023
​	​	(dollars in thousands)
​	​	​	​	​	​	​
Balance, beginning	​	$	3,076	​	$	2,680
Impact of tax positions taken during current year	​		972	​		712
Gross increase related to tax positions of prior years	​		184	​		110
Change as a result of a lapse of the applicable statute of limitations	​		13	​		(426)
Balance, ending	​	$	4,245	​	$	3,076
​	​	​	​	​	​	​

​

Included in the unrecognized tax benefits liability at December 31, 2024 were potential benefits of approximately $3.8 million that, if recognized, would have affected the effective tax rate for the year ended December 31, 2024.  Included in the unrecognized tax benefits liability at December 31, 2023, were potential benefits of approximately $2.5 million  that, if recognized, would have affected the effective tax rate for the year ended December 31, 2023.

The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more-likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return. At December 31, 2024 and 2023, accrued interest on uncertain tax positions was approximately $971 thousand and $486 thousand, respectively. Estimated interest related to the underpayment of income taxes is classified as a component of “income tax expense” in the statements of income.

Note 14. Federal and State Income Taxes (continued)

Effective January 1, 2024, the Company made an election under ASU2023-02 to account for its tax credit investments using the proportional amortization method under newly adopted accounting guidance.  Under the proportional amortization method, the Company applies a practical expedient for its tax credit investments and amortizes the initial cost of the qualifying investments in proportion to the income tax credits received in the current period as compared to the total income tax credits expected to be received over the life of the investment.

The following table summarizes that impact to the Consolidated Statements of Operations relative to the Company’s tax credit programs for which it has elected to apply the proportional amortization method of accounting:

​

​	​	​	​	​	​	​	​	​	​	​
​	​	For the Years Ended								​
​	​	December 31, 2024		​	​	December 31, 2023	​	December 31, 2022		​
​	​	(dollars in thousands)
​	​	​	​	​	​	​	​	​	​	​
Tax credits recognized	​	$	8,189	​	$	5,185	​	$	2,143	​
Other tax benefits recognized	​		2,631	​		2,037	​		1,371	​
Amortization	​		(8,313)	​		(5,091)	​		(3,109)	​
Net benefit included in income tax	​		2,507	​		2,131	​		405	​
​	​		​	​		​	​		​	​
Other income	​		—	​		—	​		—	​
Allocated income on investments	​	​	—	​	​	—	​	​	—	​
Net benefit included in noninterest income	​	​	—	​	​	—	​	​	—	​
​	​		​	​		​	​		​	​
Net benefit included in the Consolidated Statements of Operations	​	$	2,507	​	$	2,131	​	$	405	​
​	​	​	​	​	​	​	​	​	​	​

​

The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the years ending December 31, 2024, 2023 and 2022.

The Company’s federal income tax returns are open and subject to examination from the 2021 tax return year and later. Various state franchise and income tax returns are generally open from the 2020 and later tax return years based on individual state statutes of limitations.

The net deferred tax assets consisted of the following as of December 31, 2024 and 2023:

​

​	​	​	​	​	​	​
​		2024			2023
​	​	(dollars in thousands)
Deferred tax assets:		​			​
Net unrealized losses on securities available for sale and derivative instruments	​	$	18,960	​	$	18,127
Compensation	​		17,765	​		15,761
Loan/lease losses	​		19,343	​		20,628
Equipment financing leases	​	​	1,555	​	​	—
Net operating loss carryforwards, federal and state	​		493	​		630
Other	​		893	​		—
​	​		59,009	​		55,146
Deferred tax liabilities:	​			​
Premises and equipment	​		6,102	​		7,206
Equipment financing leases	​		—	​		2,084
Acquisition fair value adjustments	​		3,962	​		3,983
Deferred loan origination fees, net	​		1,098	​		1,515
Prepaid expense	​	​	1,630	​	​	1,749
Other	​		—	​		417
​	​		12,792	​		16,954
Net deferred tax assets	​	$	46,217	​	$	38,192
​	​	​	​	​	​	​

​

​

​

Note 14. Federal and State Income Taxes (continued)

At December 31, 2024, the Company had $2.2 million of federal tax NOL carryforwards and $2.0 million of state tax NOL carryforwards. $886 thousand of the federal tax NOL carryforwards were related to the acquisition of Community National and CNB and these losses are set to expire in varying amounts between 2029 and 2033.  $2.0 million of the state tax NOL carryforwards are also related to the acquisition of Community National and CNB and are set to expire in varying amounts between 2025 and 2028. The additional $1.3 million of federal NOLs were acquired in 2022 with the Guaranty Bank acquisition.  The Guaranty Bank federal tax NOLs acquired are expected to be utilized prior to their expiration dates.

At December 31, 2023, the Company had $2.8 million of federal tax NOL carryforwards and $2.0 million of state tax NOL carryforwards. $1.4 million of the federal tax NOL carryforwards were related to the acquisition of Community National and CNB and these losses are set to expire in varying amounts between 2029 and 2033.  $2.0 million of the state tax NOL carryforwards are also related to the acquisition of Community National and CNB and are set to expire in varying amounts between 2024 and 2028. The additional $1.4 million of federal NOLs were acquired in 2022 with the Guaranty Bank acquisition.  The Guaranty Bank federal tax NOLs acquired are expected to be utilized prior to their expiration dates.

The change in deferred income taxes was reflected in the Consolidated Financial Statements as follows for the years ended December 31, 2024, 2023, and 2022:

​

​	​	​	​	​	​	​	​	​	​
​		2024			2023			2022
​	​	(dollars in thousands)
​	​	​	​	​	​	​	​	​	​
Provision for income taxes	​	$	(7,192)	​	$	(946)	​	$	(4,682)
Statement of stockholders' equity- Other comprehensive income (loss)	​		(833)	​		3,192	​		(22,066)
​	​	$	(8,025)	​	$	2,246	​	$	(26,748)
​	​	​	​	​	​	​	​	​	​

​

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The entire disclosure for income tax.

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