v3.26.1
Note 11 - Income Taxes
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

11.

Income Taxes

 

The Company’s pre-tax earnings are derived solely from domestic sources. The components of income tax expense for the years ended December 31 were as follows:

 

(Dollars in thousands)

  

2025

    

2024

  

Current

                

Federal

   $ 1,184     $ 740  

State

     512       234  

Total current income tax expense

     1,696       974  

Deferred tax expense

                

Federal

     (82 )     236  

State

     (7 )     21  

Total deferred income tax expense

     (89 )     257  

Total income tax expense

   $ 1,607     $ 1,231  

 

The following table provides a reconciliation of tax computed at the statutory federal tax rate and the recorded tax expense (in dollars and percentages) for the year ended December 31, 2025, under the provisions of ASU No. 2023-09.

 

   

Year Ended December 31, 2025

    

Year Ended December 31, 2024

  

Dollars in thousands

  

Amount

    

Percent

    

Amount

    

Percent

  

Tax at federal statutory rate

   $ 1,548       21.0 %   $ 1,157       21.0 %

Sate and local taxes, net of federal benefit

     390       5.3 %     289       5.2 %

Nontaxable or nondeductible items

                                

Appreciation of cash surrender value of life insurance

     (117 )     -1.6 %     (108 )     -2.0 %

Other

     (215 )     -2.9 %     (106 )     -1.9 %

Actual income tax expense

   $ 1,607       21.8 %   $ 1,231       22.4 %

 

Pretax income from continuing operations is as follows:

 

   

2025

  
         

Domestic

   $ 7,373  

Foreign

     -  
         

Total

   $ 7,373  

 

During the year ended December 31, 2025, the Company made payments to tax authorities for income taxes as set forth in the table below.         

 

Dollars in thousands

  

2025

    

2024

  

Federal

   $ 775     $ 640  

State and local:

                

Maryland

     113       84  

Total taxes paid

   $ 888     $ 724  

 

The components of the net deferred tax asset as of December 31 were as follows:

 

(Dollars in thousands)

  

2025

    

2024

  

Deferred tax assets

                

Allowance for credit losses on loans

   $ 1,200     $ 1,172  

Allowance for credit losses on held to maturity securities

     22       17  

Allowance for credit losses on unfunded commitments

     53       66  
                 

Other real estate owned valuation adjustments

     134       65  

Derivatives

     61       -  

Nonaccrual interest

     76       114  

Post-retirement benefits

     776       758  

Unrealized loss on securities available for sale

     4,716       6,358  

Lease liability

     351       415  

Other

     3       23  
      7,392       8,988  

Deferred tax liabilities

                

Purchase accounting adjustments

     -       8  

Derivatives

     -       155  

Depreciation

     596       623  

Right of use asset

     293       354  

Insurance proceeds from storm damage

     226       226  

Other

     -       16  
      1,115       1,382  

Net deferred tax asset

   $ 6,277     $ 7,606  

 

The Internal Revenue Service (the “IRS”) recently audited our fiscal year 2016, 2017 and 2018 U.S. consolidated federal tax returns. As part of its audits, the IRS reviewed the deductions related to, and the income generated by, the Insurance Subsidiary. Following the completion of these audits, the IRS notified the Company that it disagrees with our tax treatment of the Insurance Subsidiary. The Company has appealed the determination, and management believes that it is more likely than not that the Company will prevail in that appeal. If we do not prevail in our appeal to this decision, then we could be required to pay taxes, interest, and penalties totaling approximately $2.0 million as of December 31, 2025 for the tax years under appeal. In addition, the IRS is auditing our fiscal year 2019, 2020 and 2021 U.S. consolidated federal tax returns. Although the IRS has not completed these audits, the IRS has notified the Company that it disagrees with our tax treatment of the Insurance Subsidiary. The Company plans to appeal the determination, and management believes that it is more than likely than not that the Company will prevail in that appeal. If we do not prevail in our appeal of this decision, then we may be required to amend the applicable tax return and pay additional taxes, interest, fines and/or penalties totaling approximately $1.6 million as of December 31, 2025 for the tax years under audit. For all six years under audit, if we do not prevail, the total additional taxes, interest, fines and/or penalties would be approximately $3.6 million. In light of the foregoing, a reserve for uncertain tax positions has not been recorded.

 

The Company does not have other material uncertain tax positions and did not recognize any adjustments for unrecognized tax benefits. The Company remains subject to examination of income tax returns for the years ending after December 31, 2022.