Note 7 - INCOME TAXES

The following is a summary of the components of income tax expense:


	Year Ended March 31,
	2025		2024
	(Dollars in thousands)
Current tax expense	$	614	$	831
Deferred tax expense		255		46
Income tax expense	$	869	$	877

The Association’s provision for income taxes for the years ended March 31, 2025 and 2024, differs from the amounts determined by applying the statutory federal income tax rate to income before income taxes as a result of the following:


	Year Ended March 31,
	2025			2024
	(Dollars in thousands)
Expected income tax expense at statutory rates (21%)	$	950		$	974
Tax exempt interest		(21	)		(21	)
Investment partnership tax benefits, net of amortization		1			12
Other		(61	)		(88	)
Income tax expense	$	869		$	877

Deferred income taxes result from temporary differences in the recognition of income and expense for tax and financial statement purposes. The primary sources of these temporary differences relate to the timing of the recognition of allowances for credit losses, net operating losses, mortgage-backed securities premium amortization, employee benefits, mortgage servicing rights and the market adjustment of available-for-sale securities.

The deferred tax assets and the deferred tax liabilities measured at the federal tax rate of 21% at March 31, 2025 and 2024 are as follows:


	Year Ended March 31,
	2025		2024
	(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses	$	1,188	$	1,262
Employee benefits		456		609
Net operating loss acquired due to merger		337		372
Pre-1997 intangible asset		207		207
Fair value market adjustment for AFS securities		972		1,223
Other		127		133
Total deferred tax assets		3,287		3,806
Deferred tax liabilities:
Premises and equipment depreciation		405		258
FHLB stock dividends		49		43
Mortgage servicing rights		80		85
Prepaid expenses		50		76
Total deferred tax liabilities		584		462
Net deferred tax assets	$	2,703	$	3,344

The Association does not expect the total amount of unrecognized tax benefits to change significantly in the next twelve months. As of March 31, 2025 and 2024, the Association had federal net operating loss (NOL) carryforwards of approximately $1.6 million, and $1.8 million, respectively. These NOLs are scheduled to expire between 2030 and 2036 and are subject to annual utilization limitations under Section 382 of the Internal Revenue Code. During 2025, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. Based on this assessment, and growth of the Association, the deferred tax asset is expected to be utilized in future years.

The amount of the deferred tax asset considered realizable, however, could be adjusted, and a valuation allowance recorded, if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is present and additional weight cannot be given to subjective evidence such as our projections for growth. Our projections for growth are based on growth within our deposit and loan portfolios and maintaining an adequate net interest margin.

The Association is permitted under the Internal Revenue Code to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. This addition differs from the bad debt expense used for financial accounting purposes. Bad debt deductions for income tax purposes are included in taxable income of later years only if the bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. For years beginning after December 31, 1995, the special provisions described above have been repealed. Because the Association does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided. Retained earnings at March 31, 2025 and 2024 include approximately $4.5 million, representing such bad debt deductions for which no deferred income taxes have been provided.

The Association does not have material uncertain tax positions.

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Central Plains Bancshares, Inc. Income Taxes Disclosure

About Income Taxes Disclosures

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