Income taxes

12 Months Ended

Dec. 31, 2024

Income taxes

Income taxes

7.    Income Taxes

An income tax expense of $1,110,000 was recorded for the year ended December 31, 2024 compared to income tax expense of $3,375,000 for the year ended December 31, 2023. The effective tax rate was approximately 24.3% for the year ended December 31, 2024 compared to 26.2% for the year ended December 31, 2023. The 2024 year to date tax rate was impacted by the transfer of a split dollar life insurance policy in the fourth quarter valued at $1 million to the estate of our previous CEO in accordance with his employment agreement that was a permanent benefit difference between our book and taxable income.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,
	2024		2023
	(In thousands)
Deferred tax liabilities:
Property and equipment	$	3,852	$	3,976
Intangible assets		23,377		23,006
Right of use assets		1,803		1,815
Prepaid expenses		470		490
Total deferred tax liabilities		29,502		29,287
Deferred tax assets:
Allowance for credit losses		194		81
Compensation		1,259		1,107
Lease liability		1,890		1,907
Other accrued liabilities		152		70
		3,495		3,165
Less: valuation allowance		—		—
Total net deferred tax assets		3,495		3,165
Net deferred tax liabilities	$	26,007	$	26,122
Current portion of deferred tax assets	$	628	$	279
Non-current portion of deferred tax liabilities		(26,635)		(26,401)
Net deferred tax liabilities	$	(26,007)	$	(26,122)

Deferred tax assets are required to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. At December 31, 2024 and December 31, 2023, we do not have a valuation allowance for net deferred tax assets.

At December 31, 2024 and 2023, net deferred tax liabilities include a deferred tax asset of $3,495,000 and $3,165,000, respectively, relating to deferred compensation, stock-based compensation expense, accrued compensation, lease liabilities, the allowance for credit losses, and other accrued expenses.

The significant components of the provision for income taxes are as follows:

	Years Ended December 31,
	2024		2023
	(In thousands)
Current:
Federal	$	940	$	2,240
State		285		750
Total current		1,225		2,990
Total deferred		(115)		385
Total Income Tax Provision	$	1,110	$	3,375

The reconciliation of income tax at the U.S. federal statutory tax rates to income tax expense (benefit) is as follows:

	Years Ended December 31,
	2024		2023
	(In thousands)
Tax expense (benefit) at U.S. statutory rates	$	951	$	2,694
State tax expense, net of federal benefit		270		637
Tax benefit on executive compensation		(134)		44
Tax expense on deficit from restricted stock vesting		167		52
Tax benefit from dividends paid on restricted stock		(144)		(52)
	$	1,110	$	3,375

The 2024 effective tax rate exceeds the federal statutory rate primarily due to the inclusion of state taxes in the income tax amount offset by a permanent benefit difference primarily relating to executive compensation and the transfer of a split dollar life insurance policy to the estate of our former CEO that resulted in a permanent difference between book and taxable income. The 2023 effective tax rates exceed the federal statutory rate primarily due to non-deductible compensation related expenses and state income taxes.

The Company files income taxes in the U.S. federal jurisdiction, and in various state and local jurisdictions. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service (IRS) for years prior to 2021. The Company is subject to examination for income and non-income tax filings in various states and are currently undergoing an examination of our U.S. Federal Income tax return for 2022.

As of December 31, 2024, and 2023 there were no accrued balances recorded related to uncertain tax positions.

We classify income tax-related interest and penalties that are related to income tax liabilities as a component of income tax expense. For the year ended December 31, 2024 and 2023, we had $2,000 and $-, respectively, in tax-related interest and penalties and had $0 accrued at December 31, 2024 and 2023.