NOTE 13 – INCOME TAXES

The decrease in income tax expense when comparing December 31, 2024 to December 31, 2025 is the result of prior year gains on the surrender of BOLI and related penalties offset by tax planning benefits, both of which did not recur in the current year. The non-recurring impacts from the prior year, in conjunction with current year benefits from interest income related to a Corporate Application for Tentative refund filed to carry back excess general business credits combined with other permanent tax benefits, offset by return to provision adjustments related to the 2024 federal income tax return resulted in an overall decrease in the tax rate year over year which was amplified by a reduction in year over year pre-tax income due to the current year sale of bonds.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The Company generated excess capital losses of $463 in 2025. Capital losses may generally be carried back three years and carried forward five years and are expected to be utilized before the expiration date of December 31, 2030. Additionally, the Company generated excess federal tax credits of $4,590 in 2025 that may be carried back one to three years and carried forward twenty years. Unused federal tax credit carryforwards generally expire after 20 years. The tax credits are expected to be utilized prior to the expiration date of December 31, 2045. Acquired federal tax credits totaling $548 at December 31, 2025, will expire between 2032 and 2034. The utilization of these tax credit carryforwards is not expected to be limited by Internal Revenue Code (“IRC”) sections 382 and 383.

The Company and its subsidiaries are subject to U.S. federal income tax as well as state income tax in multiple jurisdictions. The company utilized a portion of state net operating losses generated in previous periods. These net operating losses (excluding the state of Kansas) do not have a valuation allowance as they are expected to be utilized prior to their expiration which varies by state ranging from December 31, 2038, to December 31, 2043. Commercial banks are not allowed to file consolidated Kansas returns with non-bank group members. The state of Kansas allows net operating losses incurred for tax years beginning after December 31, 2017, to be carried forward indefinitely while those generated prior to this can be carried forward ten years. The Company utilized $5,491 of Kansas net operating loss for the year ended December 31, 2025. At the end of the period, the Company had unused Kansas net operating loss carryforwards of approximately $42,786 generated through operations and $9,522 acquired through acquisitions. These net operating losses have a valuation allowance of $14,648 recorded against them and may be carried forward indefinitely as they were generated after December 31. 2017.

The valuation allowance for deferred tax assets as of December 31, 2024, and December 31, 2025 was $852 and $752 respectively. The valuation allowance at each date was primarily related to Kansas state net operating losses recognized for financial reporting purposes. In establishing a valuation allowance, management considers whether it is more likely than not that some or all the deferred tax assets will not be realized. Based on this analysis, certain deferred tax assets have a valuation allowance recorded against them resulting in a zero carrying value. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment. For the year ending December 31, 2025, the Company recorded a net valuation allowance decrease of $100 as a result of management’s reassessment of the amount of net operating loss deferred tax assets that are more likely than not to be realized.

There are no material unrecognized tax benefits for the years ended December 31, 2025 and 2024

The Company is generally no longer subject to U.S. federal, state and local tax examinations for years before 2021. There are currently no examinations open at the federal or state level. During the tax year ended December 31, 2024, a Corporate Application for Tentative Refund was filed to carry back excess general business credits from 2023 to 2020, 2021 and 2022 tax years resulting in a refund of $14.9 million which was received in the second quarter of 2025. Pursuant to Section 6405 of the Internal Revenue Code, refunds in excess of $5 million to a corporate taxpayer must be reviewed by the Joint Committee on Taxation (JCT). Accordingly, the IRS has referred the proposed refund to the JCT for review. While tax years ending 12/31/2020 and 12/31/2021 are closed for audit purposes, tax year ending 12/31/2022 remains open and, under request from the IRS, the statute of limitation has been extended to October 31, 2027.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act, which changes existing U.S. tax laws, including extending or making permanent certain provisions of the Tax Cuts and Jobs Act, repealing certain clean energy initiatives, in addition to other changes. The Company did not experience any material impacts to deferred tax assets and liabilities and to income taxes payable in the period of enactment. The Company will continue to evaluate the impact the new legislation will have on the consolidated financial statements for future years.

Cash Taxes Paid