Note 7 - Income Tax |
9 Months Ended |
|---|---|
Sep. 30, 2026 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
Note 7 - Income Tax
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.
The effective tax rates were 52.4% and 649.3% for the three months ended September 30, 2026 and 2025, respectively, and were 72.3% and 28.0% for the nine months ended September 30, 2026 and 2025, respectively. Effective tax rates differ from the statutory maximum federal tax rate for 2026 and 2025 of 21%, largely due to the nontaxable earnings on BOLI and tax-exempt interest income earned on certain investment securities and loans. Included in the benefit from income tax for the nine months ended September 30, 2026, were additional adjustments related to unrealized gains and penalties. Included in the benefit from income tax for the nine months ended September 30, 2025, was an estimate for taxes and penalties on the early surrender of a BOLI contract. The effective tax rate does not include a valuation allowance against the net deferred tax asset.
The Company assesses the realizability of its deferred tax assets at each reporting date in accordance with ASC 740, Income Taxes. A valuation allowance is established when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2026, the Company was in a three-year cumulative pretax loss position. Management recognizes that cumulative losses in recent years represent significant negative evidence in assessing the realizability of deferred tax assets. Notwithstanding the cumulative loss position, management concluded that sufficient positive evidence exists to support the realization of the Company's deferred tax assets. This evidence includes the Company's historical profitability prior to the period of cumulative losses, the nature and circumstances contributing to recent operating losses, improvements in underlying operating performance, available tax planning strategies, and projected future taxable income.
Management's assessment considers the extent to which recent losses resulted from identifiable circumstances that are not expected to recur at historical levels. In addition, management evaluated its current operating trends, anticipated future earnings, and the availability of taxable income within the applicable carryback and carryforward periods. After considering all available positive and negative evidence, including the significant negative evidence associated with the Company's cumulative loss position, management concluded that it is more likely than not that the deferred tax assets will be realized. Accordingly, no valuation allowance has been recorded as of September 30, 2026. Management will continue to monitor operating performance and other relevant circumstances and will reassess the need for a valuation allowance at each reporting date.
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