MainStreet Bancshares, Inc. Income Taxes Disclosure

Note 11. Income Taxes

 

The Company files tax returns in the U.S. federal jurisdiction and required states. With few exceptions, the Bank is no longer subject to tax examination by tax authorities for years prior to 2021.

 

The Commonwealth of Virginia assesses a Bank Franchise Tax on banks instead of a state income tax. The Bank Franchise Tax expense is reported in non-interest expense and the tax’s calculation is unrelated to taxable income.

 

The provision for income taxes from continuing operations for the year ended December 31, 2025 consists of the following components in accordance with ASU 2023-09:

 

		Year Ended December 31,
(Dollars in thousands)		2025
Current
Federal		$	3,715
State			405
Total current tax provision			4,120
Deferred
Federal			(651	)
State			9
Total deferred tax benefit			(642	)
Total tax provision from continuing operations (1)		$	3,478

 

(1) The Company does not have pretax income from continuing foreign operations or foreign tax expense.

 

Income taxes paid, net of refunds received by jurisdiction consisted of the following:

 

		Year Ended December 31,
(Dollars in thousands)		2025
Federal		$	94
States
District of Columbia			60
Maryland			14
Foreign			—
Total cash paid during the period for income taxes		$	168

 

 

The provision for income taxes for the years ended December 31, 2024 and 2023 consists of the following components before the adoption of ASU 2023-09:

 

(Dollars in thousands)		2024				2023
Current expense		$	604			$	6,430
Deferred benefit			(4,528	)			(191	)
Total tax provision (benefit)		$	(3,924	)		$	6,239

 

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:

 

		Year Ended December 31,
		2025
						Percent of
		Amount				Pretax Income
(Dollars in thousands)
U.S. Federal Statutory Tax Rate			4,009				21.00	%
State and Local Income Taxes, Net of Federal Income Tax Effect (1)			327				1.71	%
Tax Credits
New markets			(2,671	)			(13.99	)%
Low income housing			(579	)			(3.03	)%
Other			(157	)			(0.82	)%
Nontaxable or Nondeductible Items
BOLI income			(261	)			(1.37	)%
Tax-exempt interest			(125	)			(0.65	)%
Proportional amortization expense			2,940				15.40	%
Other			76				0.40	%
Other Adjustments
Restricted stock adjustments			116				0.61	%
Tax losses from partnership investments			(234	)			(1.23	)%
Other			37				0.19	%
Total			3,478				18.22	%

 

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

 

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:

 

		Year ended December 31,
(Dollars in thousands)		2024				2023
Computed “expected” income tax expense		$	(2,921	)		$	6,893
Increase (decrease)in income taxes resulting from:
Tax exempt Interest			(112	)			(136	)
BOLI Income			(250	)			(225	)
Low Income Housing Investment amortization			1,700				386
State Income Taxes			(279	)			649
Restricted Stock Adjustment			(36	)			(100	)
Federal tax credits			(2,363	)			(1,317	)
Other Adjustments			337				89
Total		$	(3,924	)		$	6,239

 

The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:

 

		December 31,
(Dollars in thousands)		2025				2024
Deferred tax assets:
Allowance for credit losses		$	4,478			$	4,475
Restricted stock			589				625
Net loan fees			968				1,148
Right-of-use liability			1,376				1,490
Accrued compensation			347				354
Unrealized losses on securities available-for-sale			1,723				2,303
Internally developed software costs			2,846				3,612
General business tax credits carryforward			1,424				—
Other			315				209
Gross deferred tax assets			14,066				14,216
Deferred tax liabilities:
Depreciation			5				110
Prepaid expense			19				16
Right-of-use asset			1,209				1,326
Other			117				110
Gross deferred tax liabilities			1,350				1,562
Net deferred tax asset		$	12,716			$	12,654