Hanover Bancorp, Inc. /MD Income Taxes Disclosure
Note 11. Income Taxes
Pretax income from continuing operations is as follows:
Year Ended | |||
December 31, | |||
(in thousands) | | 2025 | |
Domestic | $ | 9,954 | |
Foreign |
| — | |
Total | $ | 9,954 | |
Income tax expense (benefit) from continuing operations was as follows:
Year Ended December 31, | |||||||
(in thousands) | | 2025 | 2024 | | |||
Current: | |||||||
Federal | $ | (73) | $ | 2,565 | |||
State |
| 833 |
| 874 | |||
Total current |
| 760 |
| 3,439 | |||
Deferred: | |||||||
Federal |
| 1,850 |
| 578 | |||
State |
| (144) |
| 16 | (a) | ||
Total deferred |
| 1,706 |
| 594 | |||
Total income tax expense | $ | 2,466 | $ | 4,033 | |||
| (a) | The components of the State deferred income tax expense for the year ended December 31, 2024, are presented net of the valuation allowance in accordance with ASU 2023-09. |
The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures effective January 1, 2025 on a prospective basis for annual reporting periods. The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended December 31, 2025 in accordance with ASU 2023-09:
Year Ended December 31, | ||||||
2025 | ||||||
Percentage | ||||||
of Pretax | ||||||
(dollars in thousands) | Amount | Income | ||||
Income tax expense at U.S. federal statutory rate | | $ | 2,090 | | 21.0 | % |
State and local income taxes, net of federal income tax effect (1) |
| 788 |
| 7.9 | % | |
Nontaxable or nondeductible items: |
|
| ||||
Restricted stock |
| (131) |
| (1.3) | % | |
Nonqualified stock options |
| (178) |
| (1.8) | % | |
Other nontaxable and nondeductible items | 20 | 0.2 | % | |||
Other |
| (123) |
| (1.2) | % | |
$ | 2,466 |
| 24.8 | % | ||
| (1) | State taxes in made up the majority (greater than 50%) of the tax effect in this category. |
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended December 31, 2024:
Year Ended December 31, | ||||||
2024 | ||||||
Percentage | ||||||
of Pretax | ||||||
(dollars in thousands) | Amount | Income | ||||
Federal income tax expense computed by applying the statutory rate to income before income taxes | | $ | 3,439 | | 21.0 | % |
State taxes, net of federal benefit |
| 515 |
| 3.2 | % | |
Salaries deduction limitation |
| 29 |
| 0.2 | % | |
Nondeductible expenses |
| (107) |
| (0.7) | % | |
Other |
| 252 |
| 1.5 | % | |
Change in valuation allowance |
| (95) |
| (0.6) | % | |
Income tax expense | $ | 4,033 |
| 24.6 | % | |
The components of income taxes paid for the year ended December 31, 2025, were as follows:
Year Ended | |||
December 31, | |||
(in thousands) | | 2025 | |
Federal | $ | 1,360 | |
State: |
| ||
New Jersey |
| 135 | |
New York State | 616 | ||
New York City |
| 360 | |
Other |
| 110 | |
Total | $ | 2,581 | |
At December 31, 2025, net deferred tax liability (included in other liabilities) was $0.4 million. At December 31, 2024, net deferred tax asset (included in other assets) was $1.6 million. The following table summarizes the composition of deferred tax assets and liabilities:
December 31, | ||||||
(in thousands) | | 2025 | 2024 | |||
Deferred tax assets: | ||||||
Allowance for credit losses and other contingent liabilities | $ | 5,847 | $ | 6,814 | ||
Operating lease liability | 2,731 | 2,663 | ||||
Net operating loss carryforwards |
| 4,775 |
| 3,041 | ||
Compensation and related benefit obligations | 667 | 950 | ||||
Accrued SERP |
| 983 |
| 996 | ||
Unrealized loss on securities AFS | 62 | 294 | ||||
Unrealized loss on derivatives | 131 | 100 | ||||
Purchase accounting fair value adjustments |
| 163 |
| 183 | ||
Total deferred tax assets |
| 15,359 |
| 15,041 | ||
Deferred tax liabilities: | ||||||
Deferred fees and costs |
| (7,470) |
| (6,527) | ||
Operating lease asset | (2,516) | (2,460) | ||||
Depreciation |
| (967) |
| (919) | ||
Unrealized gain on derivatives | — | (15) | ||||
Mortgage servicing rights |
| (9) |
| (12) | ||
Other |
| (183) |
| (114) | ||
Total deferred tax liabilities |
| (11,145) |
| (10,047) | ||
Total |
| 4,214 |
| 4,994 | ||
Valuation allowance |
| (4,567) |
| (3,425) | ||
Net deferred tax (liability) asset | $ | (353) | $ | 1,569 | ||
The Company does not have net operating loss carryforwards available for federal income tax purposes as of December 31, 2025. The Company has net operating loss carryforwards available for state income tax purposes of approximately $52.2 million. For state purposes, $9.2 million expires in 2035 and the remaining balance of $43.0 million will begin to expire in 2036. The Company has net operating loss carryforwards for city income tax purposes of approximately $18.4 million, of which $18.4 million will begin to expire in 2037.
The Company has recorded a federal deferred tax asset as, based upon an analysis of the evidence, it is more likely than not that such federal deferred tax asset will be recoverable. In March of 2014, New York State adopted legislation that benefited small community banks with less than $8 billion in average assets. Specifically, this legislation provides for a state and city subtraction modification for which the Company qualifies. This subtraction modification causes the Company to consistently generate net operating losses for New York State and New York City purposes and it will continue to do so for the foreseeable future. Accordingly, the Company has recorded a valuation allowance against the New York State and New York City portions of the deferred tax asset, as it is not more likely than not that such deferred tax assets will be recoverable. Management reassesses the need for a valuation allowance on an annual basis, or more frequently if warranted.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Alabama, Connecticut, Florida, Georgia, Kansas, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Utah and the city of New York. The Company is generally no longer subject to examination by taxing authorities for years before 2022. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The Company has unrecorded tax benefits, and the Company does not expect the total amount of unrecognized income tax benefits to significantly increase in the next twelve months.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 14, 2025 | |
| 2023 | Dec 21, 2023 | |
| 2022 | Dec 23, 2022 | |
| 2021 | Dec 23, 2021 | |
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.