| Income Taxes |
Note 12. Income Taxes As described in Note 1 - Summary of Significant Accounting Policies, the Company adopted ASU 2023-09, prospectively on January 1, 2025. Income tax expense in the consolidated statements of income for the years ended December 31, 2025, 2024, and 2023, includes the following (in thousands): | | | | | | | | | | | | 2025 | | 2024 | | 2023 | Current tax expense (benefit): (1) | | | | | | | | | | Federal | | $ | 11,721 | | $ | 8,717 | | $ | 5,632 | State | | | (97) | | | 481 | | | 692 | Deferred tax expense (benefit) related to: (1) | | | | | | | | | | Federal | | | (282) | | | (380) | | | 1,100 | State | | | (188) | | | 500 | | | 209 | Total income tax expense | | $ | 11,154 | | $ | 9,318 | | $ | 7,633 |
(1) The Company does not have income from foreign sources and therefore does not have any foreign income tax. The income tax expense is different from the expected tax expense computed by multiplying income before income tax expense by the statutory income tax rate of 21%. The reasons for this difference are as follows (in thousands): | | | | | | | | | 2025 | | | | Amount | | Percent | | Federal income tax expense computed at the U.S. statutory rate | | $ | 12,915 | | 21.00 | % | State income taxes, net of federal tax benefit(1) | | | (225) | | (0.43) | % | Nontaxable or nondeductible items: | | | | | | | Tax-exempt interest, net of interest expense disallowance | | | (762) | | (1.24) | % | Bank-owned life insurance | | | (758) | | (1.23) | % | Tax benefit from equity compensation | | | (129) | | (0.21) | % | Other items, net | | | 113 | | 0.25 | % | Total income tax expense | | $ | 11,154 | | 18.14 | % |
(1) State taxes in Tennessee and Alabama made up the majority (greater than 50 percent) of the tax effect in this category. | | | | | | | | | 2024 | | 2023 | | | Amount | | Amount | Federal income tax expense computed at the U.S. statutory rate | | $ | 9,546 | | $ | 7,607 | State income taxes, net of federal tax benefit | | | 775 | | | 712 | Tax-exempt interest | | | (683) | | | (419) | Bank-owned life insurance | | | (521) | | | (413) | Tax benefit from stock options | | | (26) | | | (68) | Other items, net | | | 227 | | | 214 | Total income tax expense | | $ | 9,318 | | $ | 7,633 |
The components of the net deferred tax asset, which are included in Other Assets in the consolidated balance sheets, as of December 31, 2025, and 2024, were as follows (in thousands): | | | | | | | | | 2025 | | 2024 | Deferred tax assets: | | | | | | | Allowance for loan losses | | $ | 9,771 | | $ | 9,029 | Unfunded commitments | | | 902 | | | 636 | Fair value adjustments | | | 1,134 | | | 1,211 | Unrealized losses on investment securities | | | 3,159 | | | 7,969 | Unrealized losses on hedges | | | 86 | | | 274 | Other real estate owned | | | 44 | | | 13 | Deferred compensation | | | 2,343 | | | 1,758 | Lease liability | | | 2,978 | | | 3,204 | Federal net operating loss carryforward | | | 3,403 | | | 3,713 | Other | | | 1,560 | | | 1,502 | Total deferred tax assets | | | 25,380 | | | 29,309 | Deferred tax liabilities: | | | | | | | Accumulated depreciation | | | 2,692 | | | 2,384 | Core deposit intangible | | | 759 | | | 1,226 | Right of use asset | | | 2,825 | | | 3,071 | Other | | | 2,225 | | | 1,221 | Total deferred tax liabilities | | | 8,501 | | | 7,902 | Net deferred tax asset | | $ | 16,879 | | $ | 21,407 |
At December 31, 2025, the Company has a federal net operating loss carryforward recorded of approximately $16.2 million acquired with the acquisition of Sevier County Bancshares, Inc. The net operating loss is subject to Section 382 limitations. The federal net operating loss will begin to expire in 2031. The income tax returns of the Company for 2024, 2023, and 2022 are subject to examination by the federal and state taxing authorities, generally for three years after they were filed. The following table represents income taxes paid (net of refunds) for the year ended December 31, 2025 (in thousands): | | | | | | 2025 | Federal taxes paid | | $ | 12,520 | State and city taxes paid: | | | | States | | | (130) | Total state and city taxes paid | | $ | (130) | Total income taxes paid | | $ | 12,390 |
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