INCOME TAXES

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13 – INCOME TAXES

Income tax expense for the year ended December 31, 2024, 2023, and 2022 is listed in the following table

	2024			2023			2022
Current income tax expense
Federal	$	13,847		$	(3,072	)	$	6,679
State		1,017			101			3,321
Total current income tax expense		14,864			(2,971	)		10,000
Deferred income tax expense (benefit)
Federal		2,703			(2,349	)		2,197
State		(1,907	)		(86	)		397
Total deferred income tax expense (benefit)		796			(2,435	)		2,594
Total income tax expense	$	15,660		$	(5,406	)	$	12,594

A reconciliation of income tax expense at the U.S. federal statutory rate (21% in 2024, 2023, and 2022) to the Company’s actual income tax expense for the year ended December 31, 2024, 2023, and 2022 is shown below.

	2024			2023			2022
Computed at the statutory rate	$	16,439		$	507		$	14,759
Increase (decrease) resulting from:
State and local taxes, net of federal benefit		364			(517	)		2,665
Tax-exempt interest		(332	)		(412	)		(749	)
Non-taxable life insurance income		(1,043	)		(852	)		(654	)
Non-deductible expenses		426			814			258
Share-based payments		(477	)		2			(200	)
Federal tax credits		(92	)		(3,715	)		(4,330	)
Investments reported under proportional amortization method		(1,441	)		(1,253	)	—
Bargain purchase gain		(448	)	—			—
Change in valuation allowance		(1,410	)		98			354
Other		316			171			491
Non-deductible transactions costs		56			62		—
Captive insurance company		(273	)		(311	)	—
BOLI surrender		3,575		—			—
Income tax expense	$	15,660		$	(5,406	)	$	12,594

The increase in income tax expense when comparing December 31, 2023 to December 31, 2024 is the result of non-recurring reductions in pre-tax income due to losses generated in the sale of bonds in the prior year, current year gains and related tax penalties on the surrender of BOLI, and current year reductions in benefits reported under federal tax credits as new investments were reported

under ASC 740-323 using the Proportional Amortization Method ("PAM"), offset by a reduction in income tax expense resulting from current year non-taxable bargain purchase gains and the reversal of a deferred tax asset valuation allowance for the expected current and future utilization of state net operating loss carryforwards. Under PAM, an election is made for qualifying investments on a tax credit by program basis and the cost of the investment is amortized through income tax expense or benefit as an offset to the non-refundable income tax credits and other income tax benefits that it received from the project entity.

Components of deferred tax assets and liabilities at December 31, 2024 and 2023 are shown in the table below.

	2024			2023
Deferred tax assets
Allowance for credit losses	$	10,812		$	11,075
Tax credit carryforwards		635			635
Goodwill amortization		1,952			2,311
Accrued compensation		2,270			1,850
Net operating loss and attribute carryforwards		3,473			4,763
Net unrealized (gains) losses on securities and cash flow hedges		17,544			18,789
Other real estate owned		661			475
Acquired loans fair market value adjustments		81			—
Deferred Revenue		209			336
Acquired securities retained		1,114			683
Other		650			542
Gross deferred tax assets		39,401			41,459
Deferred tax liabilities
Assumed debt fair market value adjustments		1,061			1,166
Depreciation		5,222			5,241
Federal Home Loan Bank stock dividends		121			15
Core deposit intangibles		2,644			662
Acquired loans fair market value adjustments		—			842
Prepaid expenses		684			658
Other		841			485
Gross deferred tax liabilities		10,573			9,069
Valuation allowance		(852	)		(2,262	)
Net deferred tax asset (liability)	$	27,976		$	30,128

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Federal net operating losses and capital losses generated in 2023 were fully utilized at December 31, 2024. Acquired federal tax credits totaling $635 at December 31, 2024, will expire between 2031 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, 2034, 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 $11,008 of Kansas net operating loss for the year ended December 31, 2024. At the end of the period, the Company had unused Kansas net operating loss carryforwards of approximately $48,180 generated through operations and $12,090 acquired through acquisitions. These net operating losses have a valuation allowance of $16,591 recorded against them and expire between 2026 and 2027 for those incurred for tax years beginning before December 31, 2017, with the remaining carried forward indefinitely.

The valuation allowance for deferred tax assets as of December 31, 2023, and December 31, 2024 was $2,262 and $852 respectively. The valuation allowance at each date was primarily related to Kansas state net operating 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, 2024, the Company recorded a net valuation allowance release of $1,410 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, 2024 and 2023. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

The Company is generally no longer subject to U.S. federal, state and local tax examinations for years before 2020. There are currently no examinations open at the federal or state level.