v3.25.2
Note 6 - INCOME TAXES
 6 Months Ended
Jun. 30, 2025
INCOME TAXES  
INCOME TAXES

NOTE 6 – INCOME TAXES

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A reconciliation of the expected federal income tax expense to the income tax expense included in the consolidated statements of income is as follows for the three and six months ended June 30, 2025 and 2024:

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For the Three Months Ended June 30, 

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For the Six Months Ended June 30, 

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2025

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2024

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2025

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2024

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% of

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% of

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% of

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% of

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Pretax

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Pretax

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Pretax

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Pretax

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Amount

    

Income

    

Amount

    

Income

    

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Amount

    

Income

    

Amount

    

Income

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(dollars in thousands)

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(dollars in thousands)

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Computed "expected" tax expense

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$

6,420

 

21.0

%  

$

6,650

 

21.0

%  

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$

11,902

 

21.0

%  

$

12,509

 

21.0

%

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Tax exempt income, net

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(4,633)

 

(15.2)

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(3,986)

 

(12.6)

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​

 

(9,023)

 

(15.9)

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(7,761)

 

(13.0)

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Bank-owned life insurance

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(210)

 

(0.7)

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(622)

 

(2.0)

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(320)

 

(0.6)

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(804)

 

(1.3)

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State income taxes, net of federal benefit, current year

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896

 

2.9

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1,088

 

3.4

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​

 

1,344

 

2.4

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2,102

 

3.5

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Tax credits

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(338)

 

(1.1)

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35

 

0.1

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(795)

 

(1.4)

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(51)

 

(0.1)

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Income from tax credit equity investments

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(424)

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(1.4)

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(497)

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(1.6)

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(852)

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(1.5)

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(1,093)

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(1.8)

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

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(37)

 

(0.1)

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(54)

 

(0.1)

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(527)

 

(0.9)

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(524)

 

(0.9)

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Other

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(122)

 

(0.3)

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(60)

 

(0.1)

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131

 

0.2

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(652)

 

(1.1)

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Federal and state income tax expense

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$

1,552

 

5.1

%  

$

2,554

 

8.1

%  

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$

1,860

 

3.3

%  

$

3,726

 

6.3

%

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The effective tax rate for the first six months of 2025 was exceptionally low at 3%, down from 6% in the first six months  of 2024. The decline was primarily due to a combination of the tax benefits from equity compensation in the first six months of 2025, new state tax credit investments, and lower pre-tax income from lower capital markets revenue. Given a more normalized mix of revenue, the Company expects its effective tax rate to increase in the third quarter of 2025.

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Effective January 1, 2024, the Company made an election under ASU 2023-02 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.  

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

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For the Three Months Ended

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For the Six Months Ended

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June 30, 2025

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March 31, 2025

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June 30, 2024

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June 30, 2025

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June 30, 2024

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(dollars in thousands)

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(dollars in thousands)

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Tax credits recognized

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$

2,587

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$

2,707

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$

2,115

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$

5,295

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$

4,319

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Other tax benefits recognized

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492

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496

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613

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988

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1,342

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Amortization

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(2,191)

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(2,192)

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(2,092)

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(4,384)

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(4,153)

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Net benefit included in income tax

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888

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1,011

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636

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1,899

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1,508

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Other income

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—

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—

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—

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—

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—

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Allocated income on investments

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—

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—

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—

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—

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—

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Net benefit included in noninterest income

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—

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—

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—

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—

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—

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Net benefit included in the Consolidated Statements of Income

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$

888

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$

1,011

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$

636

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$

1,899

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$

1,508

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The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the three and six months ending June 30, 2025 and 2024.

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On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act”, into law.  The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.  These changes were not reflected in the income tax provision for the three and six months ended June 30, 2025, as enactment occurred after the balance sheet date.  The Company is currently evaluating the impact on future periods.