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

12.    INCOME TAXES

 

The Company files tax returns in the U.S. federal jurisdiction and required states.  With few exceptions, the Bank is no longer subject to tax examination by tax authorities for years prior to 2022. Cash paid for federal income taxes, net of any refunds, during the years ended December 31, 2025 and 2024 were $1.37 million and $945 thousand, respectively.   

 

The Commonwealth of Pennsylvania assesses a Bank Franchise Tax on banks instead of a state income tax.  The Bank Franchise Tax expense is reported in non-interest expense and the tax's calculation is unrelated to taxable income. The Bank does not file any income-based taxes in any other states. 

 

The provision for income taxes for the years ended December 31, 2025 and 2024 consists of the following components before the adoption of ASU 2023-09 (in thousands):

 

Year Ended December 31,

 

2025

  

2024

 
         

Current tax expense

 $642  $1,017 

Deferred tax expense (benefit)

  118   (123)
         

Total Provision

 $760  $894 

 

The tax effects of deductible and taxable temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are as follows (in thousands):

 

December 31,

 

2025

  

2024

 
         

Deferred tax assets:

        

Allowance for credit losses

 $2,231  $999 

Deferred compensation

  663   520 

Purchase accounting adjustments on loans

  3,524   - 

Purchase accounting adjustments on securities

  1,406   - 

Core contract termination

  713   - 

Net Unrealized losses on securities

  302   1,193 

Other

  182   - 
         

Total

  9,021   2,712 
         

Deferred tax liabilities:

        

Premises and equipment

  283   176 

Purchase accounting adjustments on premises

  616   - 

Purchase accounting adjustments on deposits and borrowings

  165   - 

Core deposit intangible

  2,846   - 

Purchase accounting adjustments on intangible assets

  440   - 

Deferred loan origination costs

  93   92 

Other

  442   197 
         

Total

  4,885   465 
         

Net Deferred Tax Asset

 $4,136  $2,247 

 

Income tax expense for the years ended December 31, 2025 and 2024 differed from the federal statutory rate applied to income before income taxes for the following reasons in accordance with ASU 2023-09 (dollars in thousands):

 

  

2025

  

2024

 
  

Amount

  

Percentage

  

Amount

  

Percentage

 
                 

Provision at statutory rate

 $4,966   21.0% $1,129   21.0%

Tax-exempt interest

  (438)  (1.9)  (342)  (6.4)

Nondeductible interest expense

  56   0.2   66   1.2 

Bank owned life insurance

  (88)  (0.4)  (54)  (1.0)

Bargain purchase gain

  (3,844)  (16.3)  -   - 

Nondeductible merger expenses

  172   0.7   113   2.1 

Other, net

  (64)  (0.3)  (18)  (0.3)
                 

Applicable Income Taxes and Effective Rates

 $760   3.0% $894   16.6%

 

It is anticipated that all tax assets shown above will be realized and accordingly no valuation allowance was provided. The Company and the Bank file a consolidated federal income tax return. 

 

The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than- not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exceptions, the Company’s federal and state income tax returns for taxable years through 2022 have been closed for purposes of examination by the federal and state taxing jurisdictions.