FIDELITY D & D BANCORP INC Income Taxes Disclosure

11.	INCOME TAXES

 

Pursuant to the accounting guidelines related to income taxes, the Company has evaluated its material tax positions as of December 31, 2025 and 2024. Under the “more-likely-than-not” threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. In periods subsequent to December 31, 2025, determinations of potentially adverse material tax positions will be evaluated to determine whether an uncertain tax position may have previously existed or has been originated. In the event an adverse tax position is determined to exist, penalty and interest will be accrued, in accordance with the Internal Revenue Service (IRS) guidelines, and will be recorded as a component of other expenses in the Company’s consolidated statements of income.

 

As of December 31, 2025, there were no unrecognized tax benefits that, if recognized, would significantly affect the Company’s effective tax rate. Also, there were no penalties and interest recognized in the consolidated statements of income in 2025 or 2024 as a result of management’s evaluation of whether an uncertain tax position may exist nor does the Company foresee a change in its material tax positions that would give rise to the non-recognition of an existing tax benefit during the forthcoming twelve months. Tax returns filed with the IRS are subject to review by law under a three-year statute of limitations. The Company has not received notification from the IRS regarding adverse tax issues for the current year or from tax returns filed for tax years 2024, 2023, or 2022.

 

The following temporary differences gave rise to the net deferred tax asset, a component of other assets in the consolidated balance sheets, as of the periods indicated:

 

		As of December 31,
(dollars in thousands)		2025				2024
Deferred tax assets:
Allowance for credit losses on loans		$	4,235			$	4,130
Net unrealized losses on available-for-sale securities			10,820				14,773
Deferred interest from non-accrual assets			145				216
Operating lease liabilities			2,112				2,040
Acquisition accounting			581				775
Other			1,644				1,485
Total			19,537				23,419
Deferred tax liabilities:
Loan fees and costs			(1,937	)			(1,982	)
Automobile leasing			(3,081	)			(4,396	)
Operating lease right-of-use assets			(1,903	)			(1,845	)
Depreciation			(1,505	)			(1,588	)
Mortgage loan servicing rights			(240	)			(283	)
Total			(8,666	)			(10,094	)
Deferred tax asset, net		$	10,871			$	13,325

 

The components of the total provision (benefit) for income taxes for the years indicated are as follows:

 

		Years ended December 31,
(dollars in thousands)		2025				2024
Current income taxes:
Federal taxes		$	6,380			$	4,185
State taxes			64				66
Total current income taxes			6,444				4,251
Deferred income taxes:
Federal taxes			(1,499	)			(1,173	)
State taxes			-				-
Total deferred income taxes			(1,499	)			(1,173	)
Total provision for income taxes		$	4,945			$	3,078

 

The reconciliation between the expected statutory income tax and the actual provision for income taxes is as follows:

 

		Years ended December 31,
(dollars in thousands)		2025								2024
Provision at the statutory rate		$	6,960				21.0	%		$	5,013				21.0	%
Effect of:
State income tax, net of federal benefit (1)			50				0.1				52				(0.1	)
Tax-exempt income			(2,462	)			(7.4	)			(2,398	)			(10.1	)
Bank owned life insurance			(333	)			(1.0	)			(284	)			(1.2	)
Nondeductible interest expense			1,160				3.5				1,173				4.9
Tax credits			(228	)			(0.7	)			(522	)			(2.1	)
Discount on purchased renewable energy tax credits			(296	)			(0.9	)			-				-
Other, net			94				0.3				44				0.5
Actual provision for income taxes		$	4,945				14.9	%		$	3,078				12.9	%

(1) State taxes of New Jersey made up the majority (greater than 50% of the tax effect in this category). 

 

During 2025, the Company purchased renewable energy tax credits and calculated a provision for income tax discount of $296 thousand. The Company will carryforward $460 thousand to be applied to the provision for income tax in future periods as the credit is utilized.