FIRST COMMUNITY CORP /SC/ Income Taxes Disclosure

Note 14—INCOME TAXES

Income tax expense for the years ended December 31, 2025, 2024 and 2023 consists of the following:

 

Schedule of Income Tax Expenses

		Year ended December 31
(Dollars in thousands)		2025				2024				2023
Current
Federal		$	6,537			$	3,576			$	2,937
State			232				219				627
Total Current			6,769				3,795				3,564
Deferred
Federal			(1,012	)			71				(327	)
State			(103	)			(51	)			(40	)
Total Deferred			(1,115	)			20				(367	)
Income tax expense		$	5,654			$	3,815			$	3,197

 

Reconciliation from expected federal tax expense to effective income tax expense for the periods indicated are as follows:  

 

Schedule of Effective Income Tax Rate Reconciliation

		Year ended December 31
(Dollars in thousands)		2025							2024							2023
Expected federal income tax expense		$	5,220			21.00	%		$	3,732			21.00	%		$	3,159			21.00	%
State income tax net of federal benefit			102			0.41	%			133			0.54	%			464			3.08	%
Tax exempt interest			(227	)		-0.91	%			(195	)		-0.78	%			(275	)		-1.83	%
Increase in cash surrender value life insurance			(174	)		-0.70	%			(168	)		-0.68	%			(176	)		-1.17	%
Valuation allowance			4			0.02	%			64			0.26	%			93			0.62	%
Life Insurance Proceeds			—			0.00	%			—			0.00	%			(19	)		-0.13	%
Excess tax benefit of stock compensation			—			0.00	%			30			0.12	%			—			0.00	%
Tax credits			(22	)		-0.09	%			105			0.42	%			—			0.00	%
Other			751			3.02	%			114			0.46	%			(49	)		-0.33	%
Total		$	5,654			22.75	%		$	3,815			21.33	%		$	3,197			21.25	%

The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities:

 

Schedule of Deferred Tax Assets and Liabilities

		December 31,
(Dollars in thousands)		2025				2024
Assets:
Allowance for credit losses		$	2,950			$	2,813
Unfunded Commitments			113				103
Excess tax basis of deductible intangible assets			14				26
Net operating loss carry forward			1,001				997
Unrealized losses on available-for-sale securities			2,667				4,191
Unrealized losses on held-to-maturity securities			2,225				2,557
Compensation expense deferred for tax purposes			1,622				1,528
Deferred loss on other-than-temporary-impairment charges			5				5
Origination Income & Costs			491				439
Other Real Estate Owned			227				228
Accrued bonuses and vacation			330				76
Other			579				42
Total deferred tax asset			12,224				13,025
Valuation reserve			(1,077	)			(1,073	)
Total deferred tax asset net of valuation reserve			11,147				11,952
Liabilities:
Tax depreciation in excess of book depreciation			657				668
Excess financial reporting basis of assets acquired			830				863
Total deferred tax liabilities			1,487				1,531
Net deferred tax asset recognized		$	9,660			$	10,421

 

The Company has approximately $25.6 million and $25.2 million in state net operating losses at December 31, 2025 and 2024, respectively. A valuation allowance is established to fully offset the deferred tax asset related to these net operating losses of the holding company. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Additional amounts of these deferred tax assets considered to be realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. The net deferred asset is included in other assets on the consolidated balance sheets.

 

A portion of the change in the net deferred tax asset relates to unrealized gains/losses on securities available-for-sale and held-to-maturity. The tax expense related to the change of $1.9 million has been recorded directly to accumulated other comprehensive income within shareholders’ equity. The balance in the change in net deferred tax asset results from the current period deferred tax benefit of $1.1 million. At December 31, 2025 and 2024, the Company had no federal net operating loss carryforward.

Tax returns for 2022 and subsequent years are subject to examination by taxing authorities.

As of December 31, 2025, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.

 

During the year ended December 31,2025, the Company paid $5.5 million in cash for federal, state, and local income taxes. Of this $5.5 million, $5.4 million was for federal income taxes, and $134 thousand for other state or local income tax paid (no state was greater than 5% of total cash paid for federal, state, and local income taxes). During the year ended December 31, 2024 the Company paid $3.8 million in cash for federal, state, and local income taxes. Of this $3.8 million, $3.4 million was for federal income taxes, $305 thousand was for South Carolina income taxes, and $17 thousand for other state or local income tax paid (those states with less than 5% of total cash paid for federal, state, and local income taxes). During the year ended December 31, 2023, the Company paid $3.6 million in cash for federal, state, and local income taxes. Of this $3.6 million, $2.8 million was for federal income taxes, $565 thousand was for South Carolina income taxes, and $169 thousand for other state or local income tax paid (those states with less than 5% of total cash paid for federal, state, and local income taxes).