Federal Income Taxes
Cash taxes paid for the year ended December 31: Components of the consolidated provision for federal income taxes are summarized as follows for the years ended December 31: | | | | | | | | | | | | | | | | | |
| 2025 | | 2024 | | 2023 |
| Federal tax expense | $ | 5,175 | | | $ | 2,819 | | | $ | 2,657 | |
| Deferred expense (benefit) | 38 | | | (310) | | | 1,008 | |
| Income tax expense | $ | 5,213 | | | $ | 2,509 | | | $ | 3,665 | |
We did not have any income tax expense (benefit) in state or foreign jurisdictions.
Income tax expense for the year ended December 31, 2025 differed from the federal statutory rate applied to income before income taxes for the following reasons in accordance with ASU 2023-09: | | | | | | | | | | | |
| 2025 |
| Amount | | % of Pretax Income |
| U.S. federal statutory tax rate | $ | 5,066 | | | 21.00 | % |
| Tax credits | | | |
Low income housing (1) | (181) | | | (0.75) | % |
| Other | (68) | | | (0.28) | % |
| Nontaxable or nondeductible Items | | | |
| Tax-exempt interest | (387) | | | (1.60) | % |
| BOLI income | (240) | | | (0.99) | % |
| Other | 53 | | | 0.22 | % |
| Other adjustments | | | |
Deferred tax write off (2) | 942 | | | 3.90 | % |
| Other | 28 | | | 0.11 | % |
| Total | $ | 5,213 | | | 21.61 | % |
(1) Company has adopted proportional amortization for low income housing tax credits. Therefore, the tax credits category includes the tax credit and other tax benefits, net of the proportional amortization. (2) Prior period adjustment relates to deferred tax assets no longer realizable due to statute expiration.
Income tax expense for the years ended December 31, 2024 and 2023 differed from the federal statutory rate applied to income before income taxes for the following reasons before the adoption of ASU 2023-09: | | | | | | | | | | | |
| 2024 | | 2023 |
| Income taxes at statutory rate | $ | 3,444 | | | $ | 4,585 | |
| Effect of nontaxable income | | | |
| Interest income on tax exempt municipal securities | (490) | | | (552) | |
| Earnings on corporate owned life insurance policies | (211) | | | (193) | |
| Other | 497 | | | 292 | |
| Total effect of nontaxable income | (204) | | | (453) | |
| Effect of nondeductible expenses | 93 | | | 86 | |
| Effect of tax credits | (824) | | | (602) | |
| Unrecognized deferred tax benefit | — | | | 49 | |
| Federal income tax expense | $ | 2,509 | | | $ | 3,665 | |
The unrecognized deferred tax benefit recorded during 2023 related to a low income housing tax credit investment. The sale of this investment resulted in a capital loss carryforward that is unlikely to be recognized in the foreseeable future. As such, we
did not recognize a deferred tax asset as of December 31, 2025 and 2024 related to our low income housing tax credit investment.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Significant components of our deferred tax assets and liabilities, measured at the 21% statutory rate, included in other assets on our consolidated balance sheets, are summarized as follows as of December 31: | | | | | | | | | | | |
| 2025 | | 2024 |
| Deferred tax assets | | | |
| Allowance for credit losses | $ | 2,928 | | | $ | 2,715 | |
| Deferred compensation | 1,176 | | | 1,148 | |
| Employee benefit plans | 236 | | | 112 | |
| Core deposit premium and acquisition expenses | — | | | 764 | |
| Net unrealized losses on AFS securities | 1,913 | | | 5,529 | |
| Net unrecognized actuarial losses on pension plan | 10 | | | 105 | |
| Life insurance death benefit payable | 576 | | | 497 | |
| Contract incentives | 451 | | | 46 | |
| Lease liability | 213 | | | 273 | |
| Other | 505 | | | 494 | |
| Total deferred tax assets | 8,008 | | | 11,683 | |
| Deferred tax liabilities | | | |
| Prepaid pension cost | (310) | | | (294) | |
| Premises and equipment | (1,571) | | | (1,592) | |
| Accretion on securities | (552) | | | (482) | |
| Core deposit premium and acquisition expenses | (813) | | | (1,059) | |
| Deferred loan costs, net | (628) | | | (699) | |
| Right of use asset | (213) | | | (273) | |
| Other | (576) | | | (190) | |
| Total deferred tax liabilities | (4,663) | | | (4,589) | |
| Net deferred tax assets (liabilities) | $ | 3,345 | | | $ | 7,094 | |
While we are subject to U.S. federal income tax, we are no longer subject to examination by taxing authorities for years before 2022. There are no material uncertain tax positions requiring recognition in our consolidated financial statements.
We recognize interest and/or penalties related to income tax matters in income tax expense. We do not have any amounts accrued for interest and penalties at December 31, 2025 and 2024 and we are not aware of any claims for such amounts by federal income tax authorities.
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.