v3.25.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

14. INCOME TAXES

 

Income taxes consist of the following:

 

                       
   Years Ended December 31, 
   2025   2024   2023 
   (Dollars in thousands) 
             
Current tax provision:               
    Federal  $3,873   $2,089   $2,990 
    State   1,650    1,024    1,335 
Total   5,523    3,113    4,325 
                
Deferred tax (benefit) provision:               
    Federal   (712)   123    94 
    State   (290)   55    97 
Total   (1,002)   178    191 
Total tax provision  $4,521   $3,291   $4,516 

 

 

The differences between the statutory federal income tax at a rate of 21% and the effective tax are summarized below:

 

   Years Ended December 31, 
   2025   2024   2023 
   (Dollars in thousands) 
                         
Statutory federal income tax  $4,156    21.0%  $3,141    21.0%  $4,113    21.0%
Increase (decrease) resulting from:                              
State taxes, net of federal tax benefit   1,074    5.4    853    5.7    1,244    5.8 
Tax-exempt income   (354)   (1.8)   (340)   (2.3)   (340)   (1.7)
Bank-owned life insurance (BOLI)   (412)   (2.1)   (401)   (2.7)   (382)   (2.0)
BOLI death benefit   —    —    —    —    (163)   (0.8)
Other, net   57    0.3    38    0.3    44    0.8 
Effective tax  $4,521    22.8%  $3,291    22.0%  $4,516    23.1%

 

State taxes in Massachusetts and Connecticut made up the majority (greater than 50%) of the tax effect in this category for the years ended December 31, 2025, 2024, and 2023.

 

The effective tax rate differs from the statutory federal income tax rate primarily due to state taxes, tax-exempt income, and BOLI. In particular, state taxes increased our effective tax rate, while tax-exempt income and BOLI lowered the effective tax rate for the years ended December 31, 2025, 2024, and 2023.

 

Cash paid for income taxes for the years ended December 31, 2025, 2024, and 2023 was $5.6 million, $2.9 million and $4.6 million, respectively. Income taxes paid were as follows:

                       
    Years Ended December 31, 
   2025   2024   2023 
   (Dollars in thousands) 
             
Federal tax  $3,750   $2,050   $3,000 
State taxes:               
Massachusetts   1,406    661    1,250 
Connecticut   306    150    250 
All other states   140    70    98 
Total  $5,602   $2,931   $4,598 

 

The tax effects of each item that gives rise to deferred taxes are as follows:

 

               
   December 31, 
   2025   2024 
   (Dollars in thousands) 
         
Deferred tax assets:          
Allowance for credit losses  $5,929   $5,702 
Net unrealized loss on available-for-sale securities   5,677    7,962 
Lease liability   1,872    2,157 
Employee benefit and share-based compensation plans   1,245    1,154 
Accrued expenses   876    599 
Investment in partnerships   465    202 
Nonaccrual interest   229    292 
FDIC assessment   110    103 
Interest payable   69    90 
Purchased mortgage servicing rights   61    66 
Other   97    1 
Gross deferred tax assets   16,630    18,328 
           
Deferred tax liabilities:          
Lease right-of-use asset   (1,791)   (2,075)
Deferred loan fees   (1,013)   (914)
Purchase accounting adjustments, net   (633)   (774)
Fixed asset depreciation   (406)   (533)
Other   (71)   (35)
Gross deferred tax liabilities   (3,914)   (4,331)
           
Net deferred tax asset  $12,716   $13,997 

 

The federal income tax reserve for loan losses at the Bank’s base year is $9.4 million. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the fiscal year in which used. As the Bank intends to use the reserve solely to absorb loan losses, a deferred tax liability of $2.6 million has not been provided.

 

We did not have any uncertain tax positions at December 31, 2025 or 2024 which required accrual or disclosure. We record interest and penalties as part of income tax expense. The Company recorded $6,000 in interest and penalties for the year ended December 31, 2025. There were no interest or penalties recorded for the years ended December 31, 2024 and 2023.

 

Our income tax returns are subject to review and examination by federal and state tax authorities. We are currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2022 through 2025. The years open to examination by state taxing authorities vary by jurisdiction; however, no years prior to 2022 are open.