Commercial Bancgroup, Inc. Income Taxes Disclosure

Note 10. Income Taxes

 

The provision for income taxes includes these components:

 

		2025				2024
Taxes currently payable
Federal		$	9,290,556			$	9,301,169
State			1,158,416				725,745
Total Current			10,448,972				10,026,914
Deferred income taxes
Federal			(289,857	)			(838,604	)
State			62,064				(302,115	)
Total Deferred			(227,793	)			(1,140,719	)
Income tax expense		$	10,221,179			$	8,886,195

 

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

 

		2025								2024
		Amount				Percent				Amount				Percent
Computed at the statutory rate		$	9,930,934				21.00	%		$	8,520,115				21.00	%
State income taxes, net of federal income tax effect*			964,179				2.04	%			334,668				0.82	%
Tax credit investments			(74,054	)			-0.16	%			(126,598	)			-0.31	%
Nontaxable or nondeductible items
Tax exempt income, net of interest expense disallowance			(124,415	)			-0.26	%			(116,015	)			-0.29	%
Bank-owned life insurance			(271,307	)			-0.57	%			(251,700	)			-0.62	%
Transaction expenses			-				0.00	%			135,148				0.33	%
Change in valuation allowance			(59,854	)			-0.13	%			323,761				0.80	%
Other items, net			(144,304	)			-0.31	%			66,816				0.16	%
		$	10,221,179				21.61	%		$	8,886,195				21.90	%

  

*

State taxes in Kentucky and Tennessee made up the majority (greater than 50 percent) of the tax effect in this category.

The significant components of deferred tax assets and liabilities as of December 31, 2025 and 2024, are presented below.

 

The tax effect of temporary differences related to deferred taxes shown on the balance sheet were:

 

		2025				2024
Deferred tax assets
Allowance for credit losses		$	4,420,605			$	4,351,118
Valuation allowance for foreclosed assets			63,636				266,128
Deferred compensation			148,873				242,513
Loan marks			558,490				1,193,812
Accrued expenses			-				449,624
Deferred loan fees			851,370				778,767
Stock compensation			31,514				668,233
Other			711,798				796,889
Net operating loss, net of valuation allowance			2,595,608				2,661,417
Unrealized losses on available-for-sale securities			238,795				542,685
			9,620,689				11,951,186
Valuation allowance			(1,935,803	)			(1,995,657	)
Total assets		$	7,684,886			$	9,995,529
Deferred tax liabilities
Depreciation		$	(3,986,561	)		$	(5,012,260	)
FHLB stock dividends			(76,749	)			(386,675	)
Deposit-based intangibles			(1,085,388	)			(1,493,984	)
Other			(448,396	)			(884,090	)
Gain on purchase of bank			(1,085,008	)			(1,099,639	)
Total liabilities			(6,682,102	)			(8,876,648	)
Net deferred tax asset		$	1,002,784			$	1,078,881

 

The Company has deferred tax assets of and $2,595,608 and $2,661,417 at December 31, 2025 and 2024, respectively, relating to federal net operating loss (NOL) carryforwards from the acquisitions of the National Bank of Tennessee (NBT), Newport, Tennessee, Citizens Bank of New Tazewell (Citizens), New Tazewell, Tennessee, and AB&T Financial Corporation and Alliance Bank & Trust Company (AB&T), Gastonia, North Carolina. Both NOLs are subject to limitation under IRC §382. A portion of the federal NOL generated by NBT and AB&T will expire unused due to §382 limits. A valuation allowance is recorded for the amount that will expire unused. The NOL generated by Citizens is expected to be fully utilized and no valuation allowance is recorded related to the Citizens NOL.

Income taxes paid (net of refunds received) were as follows:

 

		2025				2024
Income taxes paid (received)
Federal taxes paid		$	8,940,530			$	7,900,000
State and city taxes paid
Kentucky			*				500,000
North Carolina			135,000				*
Tennessee			425,000				1,350,000
Total state and city taxes paid			560,000				1,850,000
Total income taxes paid		$	9,500,530			$	9,750,000

 

*

Jurisdiction below the 5 percent of total income taxes paid (net of refunds) threshold for the period presented.