Income Taxes
The provision for income taxes at December 31, 2025 and 2024 was as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| | 2025 | | 2024 |
| Current | $ | 1,444 | | | $ | 1,279 | |
| Deferred | 70 | | | (273) | |
| | | |
| Total tax expense | $ | 1,514 | | | $ | 1,006 | |
The cash paid for income taxes for the years ended December 31, 2025 and 2024 was as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2025 | | 2024 |
| Federal income taxes paid | $ | 1,915 | | | $ | 825 | |
| State income taxes paid | 10 | | | 6 | |
A reconciliation of the provision for income taxes for the years ended December 31, 2025 and 2024, with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes, is as follows (dollars in thousands):
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2025 | | 2024 |
| Provision at statutory rate | $ | 1,822 | | | $ | 1,186 | |
State and local income tax(1) | 6 | | | 7 | |
| Nontaxable or nondeductible items | | | |
| Tax-exempt income | (175) | | | (125) | |
| BOLI | (67) | | | (131) | |
| Other | 16 | | | 106 | |
| Other | (88) | | | (37) | |
| | $ | 1,514 | | | $ | 1,006 | |
| Federal Tax Rate | 21.0 | % | | 21.0 | % |
| State and local income tax | 0.1 | | | 0.1 | |
| Nontaxable or nondeductible items | | | |
| Tax exempt rate | (2.0) | | | (2.2) | |
| BOLI | (0.8) | | | (2.3) | |
| Other | 0.2 | | | 1.9 | |
| Other | (1.0) | | | (0.7) | |
| Effective tax rate | 17.5 | % | | 17.8 | % |
(1) The majority of the balance consists of California state income taxes.
The following table reflects the temporary differences that gave rise to the components of the Company's deferred tax assets at December 31, 2025 and 2024 (in thousands):
| | | | | | | | | | | |
| | December 31, |
| | 2025 | | 2024 |
| Deferred tax assets | | | |
| Deferred compensation and supplemental retirement | $ | 654 | | | $ | 601 | |
| Equity based compensation | 63 | | | 90 | |
| Intangible assets | 21 | | | 25 | |
| Depreciation | 77 | | | 54 | |
| Lease liabilities | 771 | | | 843 | |
| Unrealized loss on securities | 225 | | | 278 | |
| Allowance for credit losses | 1,807 | | | 1,784 | |
| Other, net | 206 | | | 101 | |
| Total deferred tax assets | 3,824 | | | 3,776 | |
| Deferred tax liabilities | | | |
| Prepaid expenses | (195) | | | (160) | |
| FHLB stock dividends | (40) | | | (40) | |
| | | |
| | | |
| | | |
| Mortgage servicing rights | (223) | | | (308) | |
| Deferred loan costs | (940) | | | (594) | |
| Right of use assets | (719) | | | (782) | |
| Total deferred tax liabilities | (2,117) | | | (1,884) | |
| Net deferred tax asset | $ | 1,707 | | | $ | 1,892 | |
At December 31, 2025 and 2024, the Company had no unrecognized tax benefits. During the years ended December 31, 2025 and 2024, the Company recognized no interest or penalties related to income taxes.
The Company files an income tax return in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2022.
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.